Hello class. Today I have a very special treat for you. I’ve lined up a guest teacher named Money Mountain Goat. I’ll be interviewing our guest teacher, I hope everyone enjoys todays class and with that let’s get started.
Mr, F.U – Hello M.M.G. To start with, why don’t you tell us a little about yourself.
M.M.G – Hello, I’m the Money Mountain Goat, I’m a 35-year-old expat based in Singapore on a 5-year journey to traditional Financial Independence (FI). I discovered the FI movement in early 2020 and have been obsessively reading and researching all about it ever since. My Money Mountain Goat blog documents the journey to riches (including the ups, the downs and all my mistakes!) and shares my learnings along the way.
Mr, F.U – That sounds really awesome. I’m assuming when you refer to Financial Independence, you are speaking of the point in which your investments spin off enough income to allow you to no longer depend on a full time job?
M.M.G – Yes. My current plan is to attain Traditional FIRE (25 x yearly expenses) by 40. After that my aim is to then coast to Fat FIRE by covering expenses with consulting work and side hustles, allowing my pot of gold to (hopefully) double in size by age 50.
Mr, F.U – Wow. You are really ambitious. If you don’t mind, I’d like to take a second to explain to the class the difference between “Traditional FIRE” and “Fat FIRE.” Typically, we in the industry refer to three levels of Financial Independence.
- Lean FIRE – Point in which you have accumulated enough assets to supply you with a bare budget income. Most agree that it begins around the $25,000 – $35,000 annual income level. Meaning that you are by definition Financially Independent but will have to maintain a very frugal lifestyle for the money to last.
- Traditional FIRE – This is the most common level and is commonly associated with the point at which you have accumulated enough assets to allow you to cover your current annual expenses. The typical math used to calculate this is as you stated earlier (25 x yearly expenses.) So, if you are spending $40,000 per year, you would need roughly $1,000,000 invested.
- Fat FIRE – This is the third and final level of Financial Independence. It is for individuals that choose to not only amass enough assets to cover your current annual expenses but to actually have enough to increase you annual spending in retirement. The typical annual income target thrown around is $100,000 – $250,000.
Just to clarify, everyone’s FI number will differ depending on their current incomes, expenses and post retirement plans. Obviously, if you plan to downsize and cut expenses, you may be able to get away with Lean Fire. However, if you plan to travel and spend lavishly, you should shoot for Fat Fire.
I’d also like to point out that the reverse of the (25 X income equation) is what we call the 4% rule. It is the rule that says you can safely withdraw 4% of your investment portfolio per year and have a very, very high chance of never running out of money.
Mr, F.U. – Thank you for allowing me to interject. Now that we covered the financial aspect of your F.I. journey and goal, how about we explore why F.I. is so important to you?
M.M.G – I actually like my job, I have the ability to do what I like and also geographic freedom to choose from where I want to work. Although I don’t have a ‘boss’ I do have business partners to whom I’m accountable – this is good as it keeps me focused and performing, but I don’t do it for the love of my profession. I do it solely for the money. To me, reaching FI mean true economic freedom to pursue other interests (whether they can earn money or not) and passions – for example I love hiking, winter sports, adventure travel and climbing mountains.
The other big factor is that having a tangible goal to work towards, makes working more fun. Every time I recalculate my net worth and see it’s a little closer to that magic FI number, I feel I’ve done a good job and that I’m progressing with life in a meaningful way. FI is important as it keeps me interested in my job and gives me a reason to succeed.
Mr, F.U. – I love it. I think this is worth noting class. Not everyone who is pursuing FIRE is doing so because they hate their job. On the contrary, many people like their jobs and just want the security and peace of mind that being financially independent gives them. I’d like for everyone to write this down. “Finding your WHY for pursuing FIRE is just as important as learning the HOW.” Without an emotionally connected and driven WHY, it will be hard to keep going when times get tough. With a powerful enough WHY, you will find the HOW.
Mr, F.U. – Let me ask you another question, if you don’t mind. What got you interested in personal finance in the first place?
M.M.G – I was always interested in personal finance, especially in my twenties when I was heavily in debt from university and professional degree courses. I lived in London at the time, which meant impossibly high rents and living costs. I became an ‘interest free’ credit card guru, taking advantage of special offers and cheap debt. I hustled at work to get bigger bonuses and pay rises. I wanted to be debt free, and I did it, age 28. But then it stopped, I didn’t really know what was next, going to work to earn money to spend it on nice things became vacuous and depressing. I’d go on more elaborate holidays, more outlandish mountaineering adventures just to pass the time and to have something to do and aim for. I wish I knew at 28 what I now know at 35. I would already be at FI if I did!
Mr, F.U. – Hindsight is always 20/20. I can’t help but chuckle listening to you, as it sounds very familiar to my story. I also spent money like it was going out of fashion. I’ve found that it’s best to not look back and focus on the massive amount of financial mistakes I made. However, I think that by you and I opening up about mistakes in the past, that it allows readers and students to learn from our mistakes and to realize that even the most successful people mess up.
Mr, F.U. – Now that you have been able to enjoy some financial success, do you mind sharing what your investing philosophy is?
M.M.G – I like to keep things simple and I’m a big proponent of low-cost index fund investments. I don’t buy individual stocks.
I get paid a small salary monthly of which I manage to save and invest about 25% each month. I then get a quarterly bonus from work I’ve managed to originate and bill for. I save every single penny of that bonus. My annualized savings rate is around 70%. All of that goes into low-cost index funds. I also have a small apartment in London which generates a good rental yield which I use to pay down the mortgage; I find real estate a huge hassle and won’t look to buy any further apartments.
As explained below, I have funds in pension style accounts and in traditional brokerage accounts. The nice thing with the pension style accounts is that they won’t be accessible until I’m much older and at traditional retirement age. Given I paid into these accounts during my twenties and the huge amount of time between now and traditional retirement, even without adding more funds to them, they will provide for a sizeable retirement income regardless of what I do in the meantime. This provides a bit of a safety net if things don’t quite go as planned with my ‘early retirement’ finances.
Mr, F.U. – I must say, I’m really impressed. A 70% savings rate is phenominal. I find your perspective on real estate interesting. I personally like real estate but agree that it is not nearly as passive as index fund investing. Interestingly enough, I view my rental properties as a bit of a safety net, in that they will provide me with some additional monthly income in retirement. I unfortunately never had the opportunity to contribute to any pension style accounts.
It seems that we do share the same investing phylospophy when it comes to index funds. I use and instruct my students to use broad market index funds in their portfoios. We specifically use the following type funds and allocations.
60% – large cap S&P 500 index fund
20% – International non-US
20% – Total bond index fund
I’ve recently added a REIT index fund and a high yield dividend index fund to some accounts. I really like the compounding effect of re-investing dividends.
Mr, F.U. – Now for a bit more intimate question. Would you mind giving us a hint of your current net worth?
M.M.G – As of September 2020, I’m at 34% of my traditional FI target.
Current portfolio allocations – 401K, IRA, ROTH, brokerage accounts, business, home equity.
This is where things can get a little tricky as an expat.
I have two pension accounts back in the UK but I’m unable to add to them whilst not being a tax resident there. They are now sitting pretty and nicely increasing in value each year through compounding and dividends.
I have my emergency fund of 6 months living costs invested in an easy access investment account then a brokerage account which contains the rest of my funds. I will be moving the maximum allocation possible (S$35,700) into a Supplementary Retirement Scheme here in Singapore which works like a normal pension account and is tax advantaged. My rental income pays down my mortgage on my investment property.
Mr, F.U. – 34%, congratulations. I can imagine it does get tricky, having lived in different countries. I would be interested to speak in more depth after class about how you plan to convert foreign investments. I am also interested as to how secure you feel with your current country’s financial solvency and their views and treatment towards non-citizen ownership? Sounds like you do own a rental property. I know you said real estate is a hassle but it must feel good having someone else pay down the mortgage and build your equity in a property.
Mr, F.U. – So, you are currently 35 years old and already a third of the way to your Financial Independence goal. Do you have any post retirement plans lined up?
M.M.G – I’m aiming for traditional FI for when I hit 40–42. During the first year I want to ski for 6 months in South America and New Zealand and then do some extensive mountaineering and trekking in Nepal. I’m actually putting off visiting Nepal (the mecca for all things mountain) until then precisely for this reason! Once that’s out of my system it’s time to knuckle down and work on my true life project – raising a family of my own. I will spend at least the first 5 years or so of ‘early retirement’ being a stay at home dad!
Mr, F.U. – Wow, that sounds amazing. It will be great to earn your freedom back at a young enough age that you can still be physically able to enjoy such activities. I’m not a big fan of long term traveling but Mrs, F.U. is and she seems to always get her way. Our current post retirement plans are to visit all 52 states in America and then once a year take an extended trip to some other continents. I know a few friends that have already achieved financial independence and say it was a tough transition from living a frugal lifestyle for so long to suddenly spending money. A couple of them also expressed feelings of mild regret, from leaving the workforce at such an early age. Most of this seemed to be due to a lack of purpose. To combat that, My wife and I plan to become heavily involved in local charities and fund raising.
Mr, F.U. – Since traditional FIRE is based around the 4% rule of safe withdrawals, do you have any fears of running out of money with such a long retirement timeline?
M.M.G – The 4% rule is a really useful guide and something to aim for in your early-mid wealth accumulation phase. My view is that it would need to be refined somewhat depending on your circumstances as you approach the time when you want to ‘retire early’. If the math points to 4%, I would always err on the side of caution and withdraw less; I also intend to continue to earn money during ‘retirement’ from side hustles and consulting gigs so it is less of a concern for me personally. As mentioned above, as I have the benefit of the traditional retirement accounts becoming available at normal retirement age, this is a good hedge against overspending (intentionally, or unintentionally e.g. if the 4% rule is too generous) during early retirement.
Mr, F.U. – Interesting. I agree that while there is a lot of research around the 4% rule being a proven safe withdrawal rate, it is best to always be fluid enough to make changes as needed. You mentioned side hustles and consulting as ways to generate some additional income in retirement. I have similar plans as well. Outside of my rental portfolio, we invest in private businesses mostly as limited partners. Our hope is that they will continue to provide income into retirement and then allow us an exit through owner financing them for an employee. We strongly believe in entrepreneurship being the way to not only long term wealth but as a vehicle to help others create wealth and improve our local community. We don’t have the benefit of a pension plan but we plan to allow my wife to take early Social Security benefits and then wait for full benefits age for Myself.
Mr, F.U. – As you transition into early retirement, do you see changing your current portfolio allocations?
M.M.G – I’ll switch to a much high bond allocation in retirement and as I will have more time on my hands, I will consider being more active in the real estate market – flipping a house or two could be fun!
Mr, F.U. – Interesting. I plan to increase my exposure to the bond market as well. Trying to flip a house stresses me out. I’m much more of a long term buy and hold guy that invests for cashflow. I do plan to continue adding REITs to my portfolio to add another layer of dividend income.
Mr, F.U. – This has been a great interview and I’m sure that the class has enjoyed as much as I have. As we finish up, is there anything you would like to add about the current economy or what you see on the horizon?
M.M.G – There’s a long way to go until the new normal settles and life returns to some sorts of fluid rhythm.
The nature of work has changed completely in 2020 and this will impact our cities and society more broadly. I foresee a move away from the big financial centers to cheaper areas where there’s more space available and higher standards of living. Office towers may be converted into residential space and people from richer countries may geo arbitrage and work from more inexpensive places. What was fringe even back in 2018 when I was a digital nomad, has this year become the norm. Big accounting and law firms are allowing their employees not just work from home, but to work from anywhere for up to 30% of each year. On the back of this I see bigger migration and new classes of visas for people who already have jobs but want to live somewhere else – Barbados has already launched its remote work visa for this exact reason.
The global economy will steadily return to normal growth post-covid. But lasting changes will remain!
Mr, F.U. – Great insights. This has sure been a year to remember. I think that we are going to see a major disruption in the commercial real estate industry as large companies downsize from big office buildings and allow staff to work remotely. I also think that E-commerce will continue to have a big impact on retail space. I think that we will start to see a domino effect of business closings followed by mortgage defaults and foreclosures in 2021. I also fear that many small business owners will not be able to weather the effects caused by the virus and that market share will be gobbled up by the large industry leaders, further stifling competition and creating an even larger barrier of entry to many industries.
I have hope that as an American, we always seem to find a way to bounce back. I also believe that as the digital economy continues to grow that we will move away from a traditional economic theory built around scarcity, to one of unlimited abundance. The efficiency that is made possible through technological advances and the lowered cost of manufacturing and logistics, I believe will raise the standard of living for everyone on the planet.
Mr, F.U. – Once again, thank you for being a guest teacher at FIRE UNIVERSITY and we look forward to watching you progress on your journey to FIRE.
Thanks for joining us today and remember that FIRE UNIVERSITY is not a licensed or registered financial consultant. All information contained is for entertainment purposes and everyone should seek the guidance of a licensed tax and financial advisor before making any financial decisions.