…but, for many households, changes need to be made. I often have conversations with friends that say that it is unreasonable from me to think that FIRE is achievable for everyone. They point to the fact that many households do not have the same level of income as we do, which means that FIRE isn’t an option for them. More specifically, a household on the median wage of $1,841 per week, pre-tax, (ABS 2020) can’t achieve FIRE given the average monthly family living expenses of $5,378 per month (Home Loan Experts 2021).
Before I make my argument, let me check the math on this one:
Assumptions
| Single income household | |
| Weekly income (pretax) | $1,841 (ABS 2020) |
| Monthly expenses | $5,378 (Home Loan Experts 2021) |
| 0% inflation | |
| Portfolio return on equity | 7% p.a. |
This implies
| Annual income (pretax) | $95,732 |
| Annual income (post tax) | $72,815 (ATO 2021) |
| Annual Expenses | $5,378 x 12 = $64,536 |
| Excess cashflow | $72,815 – $64,536 = $8,279 |
| Savings rate | 11.37% |
| Required portfolio (25 x yearly cost of living) | $1,613,400 |
| Years for financial independence | ~40 |
So, this household will require a portfolio of approximately $1.6M to become financially independent. Assuming they invest all of their excess cash flow at a 7% portfolio return, financial independence will take about 40 years to achieve. While this is doable, starting work at 20 and reaching financial independence at 60 would hardly be considered FIRE. Maybe they can drop the “Early” part and call it FIR?
So yes, the math checks out. It should also be noted that I’ve used the median income, which implies that half of all households’ incomes will be below this figure. This adds further strength to the argument that only a few lucky people can reach FIRE.
So, am I just a privileged a*hole that is insensitive to others in a more difficult situation than my own? Read on and you can decide.
Defending my position
I acknowledge we have been pretty lucky in our lives; that our household income is higher than the average; and not having kids saves us a lot of money. However, I want to start by saying that the majority of people have had the same opportunities that I had. Their choices simply led them down a different path.
A series of choices to delay gratification
Here’s a sample of some of the choices that I’ve made that were different to what could be considered the norm. When I was in high school, while others enjoyed their time after school hanging out at the shops, I chose to study hard to get into engineering. While I was in university, I got a job working at a supermarket distribution center; and when they offered 12 hour shifts for 6 days a week, I chose to work every single one. During subsequent summer breaks, while other students chose to travel, I chose to tolerate numerous rejections and apply for vacation work in mining companies. While others would use all of their part time income on purchasing and modifying cars or going out, I chose to save a large proportion of the money that I had earned from these jobs. I also started investing in shares to learn about the stock market.
Own your decisions
My first point here is that seemingly insignificant choices will compound over years to create a huge advantage that makes it seem like someone was gifted what they have and has been cruising on easy street the whole time. There are many points in my life that I could have said things like “what’s the point in working 12 hours a day stacking pallets for $24 per hour? $24 is not a life changing amount of money, I might as well enjoy lying on a beach with my friends instead. Or “what’s the point in applying for another mining job and facing rejection again, I could just go travelling”. It is the small and repeated compounding of all of these decisions to delay gratification that have set me down the road of financial independence.
My second point is that you need to own your decisions. Just as I have repeatedly chosen to keep trying to increase the chance of us reaching FIRE, you have the power to choose this as well. You simply need to set the goal in your mind and put the effort in to achieve it. As I like to say, you do what it takes to get the job done.
Achieving financial independence is possible for everyone
It is correct that the majority of households, in their current state, cannot reach FIRE. However, by making the commitment to increase their income and optimize their expenses the majority of households can put themselves on a solid path towards financial independence. As a reminder, when I was in university getting earning only a few hundred dollars a week, it was also impossible for me to reach FIRE. However, by focusing consistent effort in the direction I wanted to go I was able to set myself on the path towards financial independence.
Acknowledge the possibilities
While FIRE is difficult to achieve, it does not require extraordinary skill, intelligence, luck or tenacity. It simply requires a robust framework and the willingness to chip away at it one step at a time. We need to stop using our energy to figure out why we can’t and figuring out how we can.
Control expenses first
Australian household incomes are high compared to the rest of the world. How many other countries have a median household income of $AUD 1,841 a week? This is why I believe that controlling expenses is the first thing that people should do to strengthen their personal finances. We need to acknowledge the fact that many of the things that we say are ‘needs’ are actually luxuries in disguise – marketing has convinced us that spending money on luxury items is the only way to live a good life.
Increase income
Once your expenses are relatively under control your focus should turn towards increasing household income to a point where you are happy with the time it will take to reach financial independence. For me, this has taken the form of getting a formal qualification and choosing to work in a remote location – the arrangement is locally known as FIFO. However, there are an abundance of opportunities out there including starting a business; developing your skills to gain access to a better paying position; getting a formal qualification; or even looking to do the same job in a better paying industry.
A no qualification example
As mentioned earlier I previously had a job as stock picker at a supermarket distribution center preparing pallets and cages of liquor to be distributed to the various stores. The job paid OK for something that required no formal qualifications, however if this was my permanent salary for life there would be no way to achieve FIRE. For me, the combination of my engineering studies; knowledge of the job’s safety protocols; and willingness to work 12-hour shifts helped me land my first mining vacation work position. However, if I didn’t have a formal qualification, to increase my earnings I would do something like this:
- Prove my value to the company by being one of the safest and fastest stock pickers on the floor (highest pick rate, with lowest number of breakages). Take as much over time as possible.
- Learn to operate more pieces of equipment such as a fork lift. Get a formal qualification in supply chain management by doing night school. Both points 1 and 2 will help to distinguish me from the other stock pickers
- Make the company aware that I am looking for a supervisor position and take advantage of any training that they may offer.
- Push for a warehouse supervisor or a floor manager position with the supermarket I’m at or at another company that provides the opportunity. Alternatively, I’d push for the same position in the mining industry.
- Push for the supervisor position in the mining industry
- Push for a supply chain and logistics position looking after procurement or supply chain design/planning.
If you were to pursue a similar avenue, achieving step 5 would give you access to a salary over $100,000 p.a. which is significantly higher than that of an entry level stock picker. It will then be your choice as to how hard you keep pushing to increase your salary. The one important thing to remember is that any formal qualification you choose to do should be aimed at providing you with a skill to allow you to increase your hourly rate.
Concluding thoughts
I want to finish by saying that I am a pretty average guy with no exceedingly special talents. The choices that I made such as upskilling; working extra hours; and optimizing expenditure are also nothing special. Because of this, I believe that that most people have the capability of implementing a similar philosophy, which is why I believe that everyone can achieve financial independence. They merely need to forgo some short-term enjoyment in order to continually try to stack the odds in their favor.
Engineer your freedom
References
ABS 2020, Household financial resources, Australian Bureau of Statistics, available from: <https://www.abs.gov.au/statistics/economy/finance/household-financial-resources/latest-release>
Home Loan Experts. 2021, Living expenses calculator, Home Loan Experts, available from: <https://www.homeloanexperts.com.au/mortgage-calculators/living-expenses-calculator/#:~:text=Living%20cost%20in%20Australia%20for,a%20family%20of%204%3A%20%245%2C378>
ATO, 2021, Simple tax calculator, Australian Taxation Office, available from: <https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=STC&anchor=STC#STC/report>