Discovering FIRE: Financial Independence, Retire Early 🔥

It’s Christmas time, and while you celebrate with your family and friends, the Ipon Challenge is here to help you set up for future success.

With the new year coming, it’s time to reset and create well-intentioned goals for the future. A common goal for many is financial independence at an early age. It’s not a common goal, so naturally, you’ll need to reevaluate how you think about your money and your values. 

What are you willing to trade in the pursuit of more money? 

In today’s edition, we’ll go over:

• How this couple saved $1.5million in 3 years. 🤑 

• How much is enough? 🤷 

• What we can learn from FIRE. 🔥 

TLDR;

The Bottom Line

• FIRE is possible: Chris and Debbi Emick decided to retire early and amassed over 17 rental properties in 3 years. 

• There are three types of FIRE communities: Barista FIRE, Lean FIRE, and Fat FIRE.

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• When you can withdraw and live off of 4% your investment portfolio every year, you’ve achieved FIRE>

THE CONTENT

Have you heard about FIRE?

Most people don’t want to wait till 60 to enjoy life. That’s the story of Chris and Debbie Emick who achieved FIRE (Financial Independence, Retire Early) at 40. With an initial investment of $60,000 (roughly Php 3.3 million), they would grow and purchase 17 rental properties between 2016 to 2019. This helped to make the process of early retirement easier. Within 20 years from when they first started working, the American couple would accumulate $540,000 in savings and $1.1 million in real estate (of course, that’s leveraged.)

Chris and Debbie are followers of FIRE - financial independence, retire early. It’s a growing movement for nonconformists who aspire to achieve financial independence early. These individuals save and invest until such a point that they no longer need to rely on a regular paycheck to afford their lifestyle and have the freedom to retire early. 

Now, whether or not early retirement is your goal isn’t the point. Instead, we want to stress the process of planning and execution. Successful FIRE followers have a deep understanding of their goals, plans, and needs while adopting a contrarian mindset that goes against the grain of how people naturally think about creating wealth. “We went after properties that some people would call an ‘ugly duckling’,” Debbie would say.

Of course, discipline goes a long way as well. “As we were doing that [investing], I’m still saving 50-60% of each paycheck.” Chris would add. 

SHOULD YOU CARE?

Actionable Tips For You

I’m not someone who believes in FIRE, I plan to continue working throughout my life.

Idle hands are the devil’s workshop, they say. 

That said, that doesn’t mean we can’t learn anything from FIRE followers. 

The 4% Rule: Understanding the numbers

The 4% rule assumes that you’d want to retire for 30 years, it states that retirees can withdraw 4% of their savings every year (adjusted for inflation) and never run out of money.

There are three main FIRE communities: Barista FIRE, Lean FIRE, and Fat FIRE.

The goal of Barista FIRE is to save enough money to retire from full-time work and enjoy a flexible work-life balance. Barista FIRE means you’ve saved enough to partially cover your living expenses for the rest of your life. That said, you’ll still need to continue working, even on a part-time basis.

Lean FIRE is for people who live a minimalist lifestyle and plan to live frugally for the rest of their life. Someone who’s reached Lean FIRE has usually saved 25 times their yearly expenses (but that doesn’t mean they only plan to live for 25 more years.)

Finally, Fat FIRE is the lifestyle for individuals who don’t want to put a budget on their retirement lifestyle. If you want to check out some people who’ve achieved Fat FIRE, head on over to r/FatFIRE to see all the fun problems these people have. 

Each FIRE community will have a different minimum target amount. Your Lean FIRE number is usually 25 times your yearly expenses, your Barista FIRE number is minus your estimated income per year, and your Fat FIRE number just has no limit. 

Instead, the Fat FIRE number is usually calculated by taking 4% of your net worth and comparing that to the average spending of someone in your country. This formula assumes that you only spend 4% of your net worth each year while keeping the rest in investments that grow greater than that. That way, you’ll never really touch your nest egg.

Increasing their income

FIRE followers will do anything to increase their income. After all, you can only cut down your expenses so much - your income is your most powerful wealth-building tool. 

Whether it’s a career path that will help you earn Php500,000/month or a side hustle that you can turn into a small business, increasing your income looks a little different for everybody but the concept is simple: work a whole lot now to work a lot less later.

Taking advantage of compounding interest.

I tell my friends to start investing a lot, and most of them tell me that they’ll get started once they “have more money.” 

That doesn’t make sense to me. 

If the money isn’t invested, it’s likely sitting in your bank account, earning 0.025% in interest a year. 

Wouldn’t you instead invest that in an asset whose value grows 6-10% annually? 

Wouldn’t you rather start young and get paid whatever dividends you can get? Granted, it won’t be a lot - but it will definitely be more than 0.025% a year. 

Bonus: Get out of debt

There’s good debt, and then there’s bad debt. If you don’t know which is which, just don’t get it. 

STUFF WORTH SHARING

The Link Lowdown

NerdWallet on FIRE - Breakdown on FIRE

The FIRE YouTube video - I think what the Emicks have done isn’t necessarily attainable for most people, but their story does give you pretty solid groundwork to start with.

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