Different types of FIRE

There are several different types of FIRE, which can be categorized based on the degree of financial independence and the retirement age that is being targeted. Here are some of the most common types of FIRE:

1. LeanFIRE: This type of FIRE involves achieving financial independence by living a frugal lifestyle and minimizing expenses. LeanFIRE enthusiasts often aim to retire in their 30s or 40s and are willing to live on a lower income to achieve their goals.

2. FatFIRE: FatFIRE is the opposite of LeanFIRE, and it involves accumulating a large amount of wealth to support a more luxurious lifestyle in retirement. FatFIRE enthusiasts often have a high income and aim to retire with a significant amount of savings.

3. BaristaFIRE: BaristaFIRE involves achieving partial financial independence by reducing work hours or transitioning to a lower-paying, less demanding job while still accumulating enough savings to eventually achieve full financial independence.

4. CoastFIRE: CoastFIRE involves reaching financial independence early in life but continuing to work to cover basic expenses and allow investments to grow. CoastFIRE enthusiasts often aim to retire in their 40s or 50s but may choose to continue working if they enjoy their job or want to save more money.

5. Semi-FIRE: Semi-FIRE involves transitioning to a part-time or more flexible job, which allows for more free time and a better work-life balance while still earning some income. Semi-FIRE enthusiasts often aim to work part-time while still accumulating savings for retirement.

Each type of FIRE has its own unique characteristics and requires different levels of savings and planning to achieve. The approach that is right for you will depend on your financial goals, lifestyle preferences, and personal circumstances. It's essential to research and carefully consider the different types of FIRE before choosing a path to pursue.

Fire

FIRE, which stands for Financial Independence, Retire Early, is a movement that has gained popularity in recent years. It is a lifestyle approach that focuses on achieving financial independence and early retirement through smart financial planning and living below your means.

The FIRE movement is based on the principle of saving a large percentage of your income, investing it in low-cost index funds, and living frugally to reduce expenses. The goal is to accumulate enough wealth to support your lifestyle expenses without relying on traditional employment income.

There are three main components to the FIRE movement:

1. Financial independence: Achieving financial independence means having enough passive income from investments or assets to cover your living expenses. This is typically achieved by saving and investing a high percentage of your income, often 50% or more.

2. Retire early: Retiring early means leaving traditional employment before the typical retirement age of 65. FIRE enthusiasts often aim to retire in their 40s or even earlier, depending on their financial situation.

3. Frugal living: Frugal living is an essential part of the FIRE movement. It means living below your means and minimizing expenses to increase savings and investment opportunities.

The FIRE movement has gained popularity in recent years due to the increasing cost of living, stagnant wages, and rising student loan debt. Many people are looking for alternative ways to achieve financial security and independence, and the FIRE movement offers a solution.

One of the key benefits of the FIRE movement is the ability to pursue your passions and interests without the constraints of traditional employment. With financial independence, you can choose to work on projects that interest you or pursue hobbies that you enjoy without worrying about earning a traditional income.

However, the FIRE movement is not without its challenges. Achieving financial independence and early retirement requires significant sacrifices and discipline in terms of saving, investing, and living frugally. It can also be challenging to maintain your lifestyle and expenses in retirement, especially if you retire early and need to rely on your investments for a longer period.

In conclusion, the FIRE movement is an increasingly popular lifestyle approach that focuses on achieving financial independence and early retirement through smart financial planning and frugal living. While it offers many benefits, it also requires significant sacrifices and discipline to achieve. If you're interested in pursuing the FIRE lifestyle, it's essential to do your research and create a plan that works for your individual circumstances.

November in the Markets and some Updates

One of the goals, i set when starting this blog was to track the steps to FIRE- Financials Independence Retire Early- although honestly for me its more around the FI part than the IR part.

In that vein i purchased a house!

Herein starts the endless debates between the warring factions of the FIRE community….don’t buy rent and invest the difference vs buy and payoff as soon as possible.

The reality of living in Sydney Australia….expensive options both ways. Still why did i choose to buy a house…two reasons, the emotional pull finally won over me, ive been renting for 10 years plus and i wanted to finally put down roots….but the other reason and a bit of an oversight in these debates owning a home can actually allow you to get to FIRE faster than renting!

Heresy! Well not really, i started looking at future forecast out 5/10/15 years and then thinking of inputs costs over that time (power/water/food) and owning a home made more financial sense in that time period. However there is a big BUT, the but was the house had help reduce inputs, the way that occurs is moving to a non suburban area exurban areas where those inputs are almost provided free.

How are these inputs (semi) free…..three things, water tanks/solar panels/raised beds.

Two of the three are free and the last ones major input requires time as its only input.

Watching the market, S&P500 is up, bonds are trending sideways (or doing down) ….the only thing of value EM markets!

Investing- What are your options?

Lets start off with the basics, “Investing is the act of committing money or capital to an endeavour (a business, project, real estate, etc) with the expectation of obtaining an additional income or profit.”…. so by that definition our options are potentially very large.

However, we can largely group things in several categories:

Equities

Equities or stocks are simply part ownership, shares, of a company. The simplest version of this is when people buy or sell via the stock exchange. The benefit of owning equities is:

1. Dividends: Periodic payments made out of the company's profits.

2. Growth: Ideally the price of a stock appreciates and you can sell them for profit.

Bonds

Is an instrument for fixed income (debt). Bonds are loans made by an investor to a borrower (typically corporate or governmental) for raising capital. A bond is a promise to repay the principal along with fixed rate of interest on a specified date (maturity date).

Certificate of Deposits/Term Deposit

These are interest bearing, debt instruments offered by banks. Typically its a deposit with a specified period of maturity and earns interest.

Cash Equivalents

Instruments like treasury bills and money market funds are equivalent to cash and can be easily converted into cash as and when required.

Cash

Name says it all

Alternative Assets

Alternative assets run the gauntlet, from private equity to water rights. Simply they are investments into asset classes other than stocks, bonds, and cash.

Commodities

The most notable of commodities are Gold and Silver, but there are several other commodities available to investors from wheat and corn to platinum.

Real Estate/ Property Investing (REITS/ Non Reits)

Real estate investing can take several form but typically involves the purchase, ownership, management, rental and/or sale of real estate for profit. Typically there are many flavours of real estate investing, directly or through equity like investments (REITS).

Why Millennials have been (kinda) screwed and what to do about it!

Millennials, Gen Y, Echo boomers I bet you have heard the terms, the funny part is not only can no one agree on which term to use but no one can agree on when they started and when they ended!

William Strauss and Neil Howe have been largely credited with coining the term, in their book “Generations: The History of America's Future, 1584 to 2069”, but for the sake of ease I’ll use the time period 1980–2000 post Gen Xers but not the I-Gen/Gen-Y. Basically, Millennials are the last generation to not have grown up with the internet!

 Why Millennials have challenges

The common narrative that I see and hear, which I think is the most agreed on is that millennials are to blame for everything, you might’ve seen those lists blaming them for killings things

-RIP: Here are 70 things millennials have killed or how about these things or some of these trends which is great for a laugh and to kick us when we are down but how true is it?

  Let’s throw in some reality

“Millennials are less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth” and “Millennials do not appear to have preferences for consumption that differ significantly from those of earlier generations.” according to a recent report.

 So what’s going on.  Perceptions do not match reality.

Expectations and timing….driven by changing circumstances

The narrative we were told is that a good life and economic prosperity was the norm and a middle-class existence can be guaranteed through a good paying job… that’s what was drilled into me and into my friends. This, at face value, seems like sage advice because it worked for the previous generation (Boomers that’s you) by delivering prosperity.

Here is a fancy chart to back this up

Enter the first problem, the cost to get to the starting point has risen. The way to earn above market rate wages ie above minimum wage has been through a college/university degree. University fees have consistently risen faster than inflation- why this is true is another reason which I’ll get to at some point- basically it means you are starting out the gates with a large debt load. A debt load that needs to be paid for out of your wallet.  That could be fine or it could be an anchor around your neck that is impeccably hard to move! Here is some more pretty charts to confirm I am telling the truth.

or to put it another way

 This unfortunately does not show the whole picture, the other half is the income side of the equation…sure price have increased but surely starting salaries would have risen in tandem to offset this… yeah not really:

The authors comment as follows, “Overall, from 1960 through 2015, the inflation-adjusted average starting salary for a new bachelor’s degree graduate increased by 5.9 percent”…. Whilst your college degree since the 1980’s has increased 200-300% .

That’s not even talking about what type of Major you picked (fairly certain liberal arts degrees have been beaten up on enough so I won’t add to much here). I have some pretty shocking news, things don’t deviate too much:

 The flip side is that even profession based jobs have been seeing difficulties – too many people chasing too few positions.  Case in point, law school post financial crises

Just to really rub this in, depending on where you live in the world, the debt is next to impossible to reduce via bankruptcy.

Timing, unfortunately does count. Depending on their age early/mid millennials were graduating during or after the financial crises. This was terrible for multiple reasons.  Starting with opening jobs for graduates/new hires which there weren’t any, labour freezing hires persistent for year and what does this mean?  Well, Baristas were some of the most educated bunch I’ve ever met Waiters were multi lingual waiters, nanny’s had MBAs.  Basically, people were willing to do anything to pay the bills when that education they got didn’t do the trick.  Again, the data backs up these assertions, “Taken as a whole, the results suggest that the labor market consequences of graduating from college in a bad economy are large, negative and persistent”

 Changing circumstance

Some of the big issues I have just gone through are simply symptoms of much larger topics (Globalisation and Technological change) which have thrust Millennials into a very different environment than the ones Boomers especially, and too a lessor degree Gen X, were born into. The barrier to entry for millennials is higher simply to achieve certain status quo symbols of previous generations car, house etc. 

All is not lost and why there is more upside

I have spent most of these posts talking about challenges that millennials are facing and if we left it there I could understand, but that’s only half the story. The same forces that drove the changing circumstances, have provided us with great opportunities. Some of these include the rise of freelancing, more gig-based earnings (Uber anyone), it’s easier and cheaper to start a business, new, small businesses are far less dependent on location and easier to bring to scale. To top it all off, its vastly easier to learn virtually anything for free (youtube/google) or at a more reasonable price online (Udemy anyone). The availability of information and investment platforms means the investment options are far greater to Millennials than in previous generations.

What to do about it

The purpose of Upgradedwallet is to be one part muse, on various finance topics, but more importantly provide people with actionable steps to address the issues above. What we seek to do is focus on the internal locus of control, taking accountability of those actions we can control in life… and not sweating the ones outside. Things we can control:

- Debt, Savings, Investing and Income.

Things we cant:

-Will the sun rise tomorrow

-Will a recession start the day after

I hope you will join me.