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This is an attractive idea. Who doesn’t daydream about quitting their job forever? But it also comes with economic realities. His FIRE model, traditional as prescribed by early pioneers of the movement such as Mr. Money Mustache, relies on earning a high salary while living on the bare minimum to keep expenses down.
“That message actually doesn’t work for most people,” says Fiona, who, with her husband Corey, runs The Fioniers, a company that creates content and offers courses, coaching and retreats centered around financial independence. Jessica Fick says.
“Most people don’t make a software engineer salary and can’t live on $30,000 a year,” she added.
In other words, if you’re a normal person living on a regular salary, you’ll need to be very poor or take a lot of time to save enough to achieve FIRE. Become. If it’s the latter, Jessica and Corey think you should enjoy life along the way.
“We focus on how people can achieve the life they want while on their way to FIRE, not just after,” says Jessica.
Mr. and Mrs. Fix, both 36 years old, rate their financial independence into five levels, and say they are currently at Level 3, known as “Coast FI.” They have saved enough money to eventually retire, estimating that at his current pace he could quit working in his 50s and use the money he earns now to pay for his lifestyle. can do.
For the couple, based in Boston, that means traveling the country in a van for six months in 2023 and spending time outdoors with their Goldendoodle, Madison.
Here we take a closer look at the five levels of financial freedom.
The first step to financial independence is debt freedom. The Fixes are not pure anti-debt advocates. For example, they say a mortgage can be part of a perfectly sound financial plan.
But for people with high-interest debt, such as credit card balances, paying down debt means making room in your budget to save more aggressively for retirement.
“The whole point of debt freedom is that your expenses will be lower,” Corey says. “If you eliminate debt, you’ll either save more or work less.”
According to the Fixes, building enough wealth to say “forget it” isn’t just about reaching a certain amount of money.
“It’s also an emotion,” says Jessica. “It’s the amount of money you feel you need to get out of a bad situation or take advantage of an opportunity, such as leaving a toxic job or starting a new business.”
This number depends on lifestyle factors such as whether you have children and how easily you can pivot to a new job in your field if your current job doesn’t work out. It doesn’t have to be cash. For example, you can count your investment accounts if you want to take advantage of them under the right circumstances.
But that willingness is key. “Money you don’t feel you can use isn’t ‘F you’ money,” says Jessica.
Determining whether you have reached Coast FI requires some calculations. First, you need to have your FIRE number in mind. Generally, this number is determined by determining the annual income you want to live on in retirement and multiplying it by 25. In reality, it would be divided by 4%. This is the amount you can safely withdraw each year. Retire without running out of money.
Let’s say you think you can live comfortably in retirement with $40,000 a year. According to her traditional FIRE number calculation, he would need to invest $1 million to make this happen.
If you reach what Fioneers call Coast FI, you won’t need to invest another dime because the money you already have in your investment account will reach your FIRE figure, given certain market assumptions.
Use a compound interest calculator to see if you’re on track. Going back to the previous example, let’s say you and your girlfriend are 25 years old and your goal is for him to reach his FIRE number by age 50. If you have $175,000 in a Roth IRA and your portfolio is expected to return 7% annually, you’re on track. Become a millionaire by age 50 without increasing your investments.
During that time, every dollar you earn goes toward funding your current lifestyle. In other words, it coasts.
For the Fixes, that meant quitting their day jobs and putting money into a business that was profitable enough to allow them to travel in a motorhome.
“The dream is to be location independent and to be able to achieve financial independence long before it happens,” Corey says. “It’s part of the dream to be able to buy a camper, build it, and travel three to six months a year.”
In theory, you could “coast” all the way to retirement, but if you continue to contribute to your retirement accounts and continue to live below your means, you may be able to live a semi-retired life. This condition is referred to by some of his FIRE followers as “. Barista FI. ”
At this stage, you can work less or accept a lower-paying job that you find enjoyable (for example, making cappuccinos at your favorite local cafe) while supplementing your living expenses with withdrawals from your investment account.
“You might withdraw 1% or 2%, but your active income covers the rest,” Jessica says. “And even if you withdraw, your investment will still grow to provide the traditional retirement number you need at a later point.”
At the final level, withdrawals from savings completely replace the income you would otherwise receive from working. At their current pace, the Fionias expect to reach full financial independence in their 50s, but that number is not set in stone. If their income exceeds their current lifestyle needs, they can use the extra funds to support their medium-term goals.
Also, restarting your investments for retirement could increase your FIRE number or bring you closer to your retirement date.
“Getting to Coast FI doesn’t mean you can’t save another dollar,” Corey says. “It just gives us the option to live a more intentional life.”
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