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F.I.R.E 101

This post is designed to give students the basic knowledge to get started on their path to Financial Independence, we will tackle the money, the math, the plan, and most importantly the REASON. To start with we need to define Financial Independence, Financial Independence is when you no longer need to trade time or energy for money. It is when you have saved enough financial capital to continue living the lifestyle you want without worrying about earning money.

The goal is for the money you have saved and invested to be working and providing large enough returns via dividends and capital gains, that you can live off of the interest and never worry about running out of money. There is a lot of debate as to what the actual amount of money someone needs to confidently walk away from their career but for simplicity, we will go with 25 times your current monthly expenses.

This would equate to being able to comfortably withdraw 4% of your account balance every year to live off of. This number has been studied extensively and proven to be the sweet spot. Trinity University did a study of historical returns and back tested the 4% withdrawal rate, they found that it had an almost 100% success rate of insuring that the investor did not run out of money after retiring. The really interesting thing is that in most cases the investor actually ended up with more money than they started with even after they had withdrawn 4% to live off of for 30+ years. So where do we start?

balance business cobblestone conceptual

The REASON– The reason for Financial Independence in my opinion is the most important part because without the why it’s hard to get motivated to even start and really hard to keep going when progress seems slow or setbacks occur.

Everyone’s why will be different depending on their personal beliefs and what is important to them, for me it’s security for me and my family.

Simply saying my why is I want to be rich, is not enough. You need to really define what is important to you and connect your finances to it on an emotional level. I recommend spending time thinking about what a future of financial independence would look and feel like, how would being secure in your future and having the ability to choose to work because you want to, not because you have to feel like?

How would you behave or act if you didn’t depend on a job to pay your bills. What would you do with your free time, how would your freedom affect your family and friends? Once you have written down your WHY and what it means to you then we need to tackle the how.

person writing on white book

The How – The how can be summed up very simply as getting your monthly expenses as low as possible so that you can save as much of your income as possible, so that you require very little income to live off. So if you can imagine paying off your debts and saving 40% of your income, that means you only need 60% of your current income to actually live off. Lowering your monthly expenses, speeds retirement up exponentially as it allows you to save more and at the same time require less to actually live off of. 

The chart below is from the Mr. Money Mustache (MMM) website and does a great job of showing just how powerful a high savings rate can be. It shows that saving 5% of your income takes 66 years to be able to retire, it means you need 95% of your income to pay your bills. On the other hand a 50% savings rate only takes 17 years to reach retirement because you only need half of your monthly income to cover your living expenses.

So let me say this one more time, the lower you can get your living expenses the more of your income you can save to build a money making machine.

              Savings Rate (Percent)        Working Years Until Retirement
5 66
10 51
15 43
20 37
25 32
30 28
35 25
40 22
45 19
50 17
55 14.5
60 12.5
65 10.5
70 8.5
75 7
80 5.5
85 4
90 under 3
95 under 2
100 Zero

I’m sure that many of you are saying this sounds great but who can afford to live off of only 50% of your income, unless of course you make a million dollars a year. Well the great part about this math is that it is all about percentages, so whether you earn $10.00 an hour or $100,000 a year, the math is all the same.

The less of your monthly income you require the more you can save and the sooner you can afford to retire. Honestly if you could live with family or friends for free you could probably retire now.

The first thing to do is to begin tracking your income and expenses and get a clear picture of what you have coming in and what you have going out. If you spend more than you make you have a deficit, if you earn more than you spend you have a surplus. Managing your monthly finances will allow you to better understand where you are, where you want to be, and how to get there.

Remember the earlier you retire the longer you will need to live off of your investments. Interestingly if you can increase earnings and simultaneously cut spending your savings and net worth will start to grow exponentially. Once you start to see progress it becomes really fun, actually it starts to become slightly addictive. Albert Einstein said that “Compound interest was one of the great wonders of the world”, it allows your money to earn interest off of the interest and once you get a decent amount saved your money will start earning more than you do by working, that’s when it gets really fun.

man in red crew neck sweatshirt photographyOkay class, we defined our why, we looked at the math behind how lowering expenses allows us to shorten the time till retirement, and we also know how much we are spending and saving. Now we need to see if the amount we are saving each month will get us to our retirement goals. For me it easiest to work backwards by finding my FIRE number, then we can make a plan and set goals to help us achieve it.

photograph of men having conversation seating on chairSince most of the students are regular W-2 employees, here is my recommendation for where and how to save your money. Start with your companies 401k and put in enough to get the company match, this is like free money and everyone loves free money.

Next let’s move over to a traditional IRA, my personal favorite brokerage is Vanguard and it only takes about 10 minutes to open an account. Currently individuals are allowed to save up to $6,000 per year in an IRA. This money is post tax but you get a credit on it when filing taxes, so you get an immediate tax savings in the year invested.

Once you max out the IRA account, we can move back to the 401k. Maxing out your 401k should be your next goal, all the money put in this account is put in pre-tax and instantly lowers your taxable income. So not only does it lower the amount of taxes you have to pay, it also allows that money to grow tax free as well.

This is especially advantageous for someone who is in a high tax bracket because once retired chances are you will be in a lower tax bracket.

So if you make it to the point that you are maxing out an IRA and a 401k and you still have additional income to invest, I recommend utilizing a taxable brokerage account. These accounts are for post tax income and have no limit to contributions, these accounts don’t have any real tax savings but they allow you to invest in anything you can imagine and as long as you keep the investments for more than a year you benefit from the long term capital gains tax rate.

bank banking business cardsI of course as all of you know believe in paying off all debts and holding at least 2 months of expenses in cash in a savings account. All of these goals can be worked towards at the same time. I recommend paying off any debts with high interest rates and leaving debts associated with appreciating or income producing assets until last.

I would in fact suggest that if the debt is associated with an asset that produces enough income to cover the debt payment that it should be moved to the bottom of the list. Also if you have a stable job and feel secure in it I think the emergency fund can be less of a priority, however you must be able to cover any unexpected expenses that might arise without having to dip into your savings or go into debt to cover them.

This is not only a plan to get you to financial independence but to create generational wealth. Once you have reached what we call critical mass or saved an amount that spins off enough money for you to withdraw 4% to live off of, not only will you most likely never have to work again but you will likely leave the next generation a massive inheritance.

If you couple this with teaching them how to save and live below their means, plus getting them started saving young they will be able to grow that nest egg and change the course of the family tree.

woman man and girl sitting on snowOkay class, this concludes our lesson for the day. Now for your homework, I’d like everyone to write their WHY for financial independence somewhere that you will be constantly reminded of it. Creating that strong emotional connection will help drive you and keep you focused on the prize. If you are interested in getting started by crest a budget and tracking your wealth, check out our new workbook. It’s designed to get you off to a good start and quickly set you on the path to Financial Independence.

Thank you for joining us and remember that we are not licensed financial advisers or tax professionals, please consult with your financial specialist before making any financial decisions.

My mission/My purpose

Hello everyone, allow me to introduce myself. My name is Mr. Financial University but you can call me Mr. F.U.

I’m in upper management for a very large international company. I have worked for two of the worlds largest companies in my industry and been blessed with learning a lot about how business and finance works.

I live in Tennessee but have resided in several other southern states. I have four wonderful kids, plus an amazing and beautiful wife. All my kids are in college or high school and my wife is also a working professional. She is currently finishing up her masters degree, after having chosen to return to school.

In our spare time, we enjoy being outside. Hiking, sports, jogging, and finding waterfalls are some of our favorite ways to spend time together. We are also heavily involved in our church, where we teach Sunday school classes.

I have always been interested in personal finance and business. I majored in business and love pouring over financial statements to decipher how the money moves through an organization.

Several years ago, I became disillusioned with the wealth gap between the front line employees and the C-suite employees. The front line employees did the hard work and heavy lifting, that was directly tied to the income generating aspect of operations. However, the C-suite employees received all of the perks along with salaries that were 10 times that of the front line employees.

To make it worse, the C-suite employees not only earned more but were actually building wealth or capital to be able to invest elsewhere and earn even more money. They had the company cars, expense accounts, stock options, and bonuses. Additionally, they had the nice offices with assistants to do most of their work.

After speaking to front line employees all over our organization, I realized that not only did they earn far less in income but they were not ever going to get ahead because they didn’t understand how to build wealth. Most lived paycheck to paycheck. Many depended on payday advance loans to make ends meet.

They spent their hard earned money on consumer goods that would soon be worthless. Very few took advantage of our 401K to save for retirement, which meant they would be forced to work forever to fund their lifestyle.

I heard horrible stories of employees that couldn’t afford to have health insurance, elderly people that were working just to afford medications, people that had declared bankruptcy due to hospital bills, even people that had to take public transportation because they couldn’t afford car repairs.

One day during a board meeting, where we had food catered in and served to us by an employee that most people at the table probably didn’t know. I decided to devote my spare time to educating and helping the front line employees to build wealth and get ahead in life.

I’ve since helped many employees sign up for their 401K, learn to make monthly budgets, set aside money for unexpected expenses, and even save for a home purchase. I’ve helped young people get enrolled in college and start side hustles to earn extra income and even begin investing in the stock market.

I believe that as a leader, I have a duty to the shareholders, but also to the stakeholders. The front line employees are arguably our biggest stakeholders, they depend on us to provide not only jobs but opportunities for advancement.

I truly believe that through empowering and educating the lowest paid employees that we can continue to not only increase earnings for the shareholders but build a stronger and more diverse community.

If you’d like to receive a free copy of our budgeting and wealth tracking program, leave a comment and I’ll send you a free discount code.

How do you feel about the wealth and income gap between the executive class versus the hourly workers? Leave us a comment.

Thanks for reading and remember FIRE UNIVERSITY LLC is not a licensed or registered financial advisor. Everyone should consult a licensed financial professional before making any financial decisions.

Meet the Bloggers

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.

  1. 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.
  2. 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.
  3. 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.

Thanks,

Mr, F.U.

Decisions, Decisions, Decisions….

Hello class, welcome back to Fire University.

Today I want to talk about decisions and how today’s decisions, affect the decisions we make later in life.

The better the decisions we make today, the more choices we will have later in life.

Life is full of decisions and often times we are forced to make those decisions without fully understanding their consequences.

What we may not realize is that by making a decision to do one thing, we are also deciding not to do something else.

In finances, we call this opportunity cost. Opportunity cost put simply, means that by deciding to spend money on one thing, means that we can no longer use that money for something else.

An example would be by purchasing a car with a high monthly payment, we are also deciding to forgo other things every month that we can no longer afford.

The more decisions like this we make, the less options we have and the tougher decisions we have to make later in life.

If for example, we choose to take on several large monthly payments, we are choosing to have very little disposable income.

This decision could also carry a large opportunity costs as we will not be able to take advantage of opportunities that may present themselves.

On the flip side of the coin, good financial decisions can open us up to a world of opportunities and other fun decisions.

For example, if we decide to attend college, we are deciding to forgo that time that could be spent working but we are also deciding to invest in our future earning potential.

If we choose to save and invest in our retirement, we will have the ability to decide later in life how we want to spend our time and money.

How do we know if we are making the right decision? Is there a way to tell the future?

Well, unfortunately nobody that I know of can tell the future but we can use history to make the best decisions possible.

Historically speaking, we know that stocks have outperformed all other investment options.

Historically speaking, we also know that most investors fail to outperform the market.

By taking this information, we can make a pretty good guess that investing our money into index funds, which track the market, will most likely yield a good result.

We can also look back and know that by practicing sound financial advice will open us up to lots of opportunities.

Sound financial advice, involves spending less than you earn and investing in long term wealth building assets.

This is where FIRE or Financial Independence Retire Early, comes into play.

By following the easy to understand principles of cutting costs and investing in broad market index funds, we can with some certainty expect great results.

By making these decisions in the present, we will open up a world of opportunities, that will allow us to make great decisions later.

For instance, by making the decision to follow the FIRE lifestyle, we will later be able to decide whether we want to continue working or spend time doing something else.

We will be be faced with decisions such, whether to wake up early or not, whether to shower and get dressed or just stay in bed and watch TV all day.

We may even be forced to decide where in the world we want to visit or even move to.

We will surely have to decide what charities we want to donate to.

See, our earlier decisions really affected the decisions we were faced with later in life.

What if we hadn’t decided to follow the FIRE lifestyle? What decisions would we be faced with then?

We may have to decide between buying medications we need or having money to go out to eat.

We could be forced with deciding if social security benefits will be enough to live on or if we need to work part time.

Maybe, we have to decide if we can afford to visit the new grandchild or not? Whether we can even afford to take off from work to visit family at all?

Other tough decisions such as whether or not we can afford to stay in the family home or be forced to sell to afford medical bills, will be in store for sure.

This principle of making good decisions now, so that we have the opportunity to make better decisions later in life, applies to almost all areas of life.

Deciding to eat healthy and exercise now, will allow us to decide how we enjoy our health later in life.

Deciding to study in college and work hard at your career, will allow you to decide where you want to work and how much you are willing to accept as a salary.

What are some tough decisions you’ve made lately? How do you think they will affect your future? What advice do you have for young people facing tough decisions right now?

Leave a comment and let us know, we look forward to hearing from you.

In closing, we remind you that Fire University is not a registered or licensed financial advisor. All material is for entertainment purposes only and everyone should seek the advice of a licensed professional before making any financial decisions.

New Product !!!!!

Thanks to everyone for all of the constant support and encouragement. Our goal has always been to help as many people as possible to achieve financial freedom. We are happy to announce that we just created a simple and fun workbook to help track spending and wealth building along the journey to financial freedom. This is a quick and easy workbook to help someone understand the difference between assets and liabilities as well as see how their income and expenses affect their monthly cashflow.

If you like this workbook, be sure to check out our other books and courses. If you would like the latest and greatest news about investing and all things F.I.R.E, leave us a comment and we’ll sign you up for our weekly emails.

Additionally, if you comment to this article on twitter, with the reason Financial Independence is important to you, I’ll send 10 people a free discount code for the workbook.

Kynesian Vs Reaganomics

In the constant battle between Democrat vs Republican it’s easy to lose sight and even interest as it seems both parties are more focused on making the other party look bad and placing blame than on actually moving America forward. However one thing we are all interested in is what they plan to do with the money they take from us each week, month, and year. I think as Americans we have become so accustomed to taxes being taken out of our paychecks that often times we fail to even look at our check stub to see exactly how much is being taken from us, even worse we certainly don’t keep track of what exactly they are doing with our money.

Article I, Section 8, Clause 1 of the United States Constitution states –  The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States. So basically the money they take from you should be spent to fund the military, upkeep of infrastructure, and to care for those that can’t care for themselves, this an abbreviated definition but you get the point of the founding Fathers, which was to limit government taxation to only what was necessary to continue running the government and keeping it’s citizens safe. Unfortunately in modern times we have a lot of different opinions of how much should be taken from us and what it should be used for. There are 2 main sides and each has very strong and feelings associated with their beliefs, below we will examine both in depth and let you decide which makes more sense.

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Photo by Pixabay on Pexels.com

Keynesian Economics – Keynesian economics was developed by the John Maynard Keynes during the 1930s in an attempt to understand the Great Depression, most economist were completely baffled by the great depression and could not fully explain it. Keynes thought that increased government spending and lower taxes would stimulate demand and could pull the global economy out of the depression. Keynesian economics can be summed up by saying that optimum economic performance can be achieved and economic slumps prevented by creating aggregate demand through government intervention and activist stabilization. Keynesian economics is considered a “demand-side” theory that focuses on changes in the economy over the short run. Basically Keynesian followers think that capitalism has it’s flaws and creates massive ups and downs in the economy, during these down turns Keynesian’s think that the government should step in and intervene by spending money and creating a false demand. This makes some sense because during an economic slump businesses close and people are laid off or let go, if the government infuses the economy with money through infrastructure building, it creates a need for the materials to be produced and the people to do the actual work, this in turn gives people more money to then go spend at local stores, which props up the economy even more. Then critics of this theory make 2 big points, one a free market will always correct itself and any attempt to manipulate it will result in greater problems down the road. Second since the government doesn’t actually create anything, the money it is using to prop up the economy is simply being taken from one person and given to another without actually creating a lasting need or supply and by creating a false demand that it will either have to continuously keep the infusing money or the false demand will collapse.

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Reaganomics –  Ronald Reagan’s economic policy was built around a few key concepts, reduce the growth of government spending, reduce the federal income tax and capital gains tax, reduce government regulation, and tighten the money supply in order to reduce inflation. Ronald Reagan and his economic adviser Milton Friedman, figured that if you cut taxes on companies and the very wealthy, while also reducing  regulations on business, they would invest more, the economy would expand, and everyone would benefit. Of course, this approach, would require cutting government spending and the services it offered, which would affect low income Americans the most. Reagan thought the benefits to the rich would eventually “Trickle down” from those on the top of the ladder to those on the bottom.

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So there we have it, two very different ideas and approaches to how the government uses the money we give them. Both economic theories were founded during extremely difficult financial periods for the United States, Keynesian economics during the Great Depression and Reaganomics during the Cold War. Reaganomics initially created a huge surge for the economy much like the one we see today. It lowered unemployment and created a massive uptick in entrepreneurs starting new companies. However it took the federal debt from 900 million to over 3 trillion in just 10 years. Keynesian economics usually implemented by democrats often times has the same effect of creating an initial surge in the economy but is dependent on the businesses continuing to pay high taxes, however the higher taxes usually eventually cause the high earners to shelter money, and the businesses to move money elsewhere, while also not investing to grow the company, which halts job growth, this creates less tax money for the government to spend on it’s policies. Both sides have operated in a budget deficit the majority of the time in recent years and both added to the national debt. So what’s the solution? Which one should we go with? Well how about a little bit of both, how about we lower taxes on businesses and give them tax incentives to spend money here in America. Lower government involvement and regulations but offer tax incentives for companies to invest in the communities they inhabit and their employees live. No matter what we do, we will always be obligated to care for those that can’t care for themselves, while also trying to maintain and improve our great country for the next generation.

Giving your $$$ fertility treatments.

Imagine you are a farmer and you have saved your money to buy a piece of land to begin your farming business. You must decide what you will produce to make money. First you think of crops such as corn, wheat, tomatoes, maybe even tobacco, but then you think about your friend Joe who spent weeks plowing the fields and sowing seeds. Joe Spent months praying for good weather in hopes that his investment would yield a good return. Fortunately for Joe his crop did produce but then he had a short window to sell before it all spoiled and became worthless. You think to yourself that seems like way to much work and way to much risk.

The next day your wife comes home from the market and is complaining about how high the price of milk is, that’s when it hits you. You will be a cattle farmer!!! After all cattle produce milk every day and better yet your friend Bob is a butcher, who would love to buy cattle from you to sell in his shop. So you save enough money to buy 2 cows and excitedly wait for them to produce milk. Unfortunately you soon realize that two cows won’t produce enough milk to cover your expenses, so you think I need more cows!!!

After saving for a couple months you have enough to buy another cow but on your way to the market you have an idea, “What if I bought a bull and let him make me more cows?” That’s it you say, I’ll buy a bull and let them make me more cows while I spend my time working on something else. So you buy the biggest and best looking bull you can find. It’s a year later and your 2 cows and 1 bull have become 4 cows and 1 bull, but better yet your income from milk has doubled!!! With Zero extra investment you have increased your net worth in cattle and doubled your passive income.

Since you are working and aren’t dependent on the milk revenue for income you decide to just keep re-investing it back into purchasing more cattle. So now at year three you have 5 cows and 1 bull that all reproduce and you end up with 9 cows and 2 bulls. This is amazing the cows keep compounding on each other and your income from milk increases each year with no extra work from you, only a small fee to the neighbor’s son to milk and feed to cattle. This year over year compounding continues until you have more cattle than you can imagine and the income from the sale of milk has far exceeded your regular income. It’s at this point you realize you no longer need to work, you can retire and live off of your milk sales. What’s even better is you can sell a couple cows every year to your buddy Bob the butcher for even extra income to travel. With so many cattle constantly reproducing even if you sell a few each year, you will still end every year with more than you started with and your milk income will still continue to grow!!!! Poor old Joe who had some good years with his crops but also had some years where everything got wiped out is still breaking his back plowing fields and planting seeds, hoping for one big pay day to be able to retire. Unfortunately for Joe he pays tax on all of his crops every year as he sells them to have income but you only paid tax on your milk sales, not on the cows that kept multiplying and increasing your net worth and passive income. This allowed you to grow your wealth much faster than Joe and while joe had some great years where he was able to buy new fancy tractors, you slowly but surely kept increasing your worth.

So what does this have to do with money and investing? Well you being the cattle farmer was like someone who slowly invest in income producing assets like stocks that pay dividends. It’s slow at first but eventually if you elect to reinvest those dividends, they begin to grow and purchase even more shares, that produce even more income, and so on and so on. Just like the cattle eventually you will have thousands of shares paying passive income, that continues to buy more shares and if you do this in a non-taxable account like an IRA, that dividend income isn’t taxed so it grows and compounds tax free.

The key is to START!!!!!! The earlier you begin saving and investing, the longer your money has to grow and compound. Even if you can only save a little each month, that is better than nothing and each dollar saved is one step closer to your goal.

Thanks for reading and remember FIRE University is not a licensed financial advisor or a certified tax professional. Everyone should seek professional help before making any financial decisions.

My favorite investing apps

It’s no secret that investing has gotten not only easier in the last decade but investors also have access to much better and up to date information that allows them to make better decisions. Today I want to talk about my favorite investing apps, all of which I use on my smart phone, to research, fund, and invest without having to get up. While I have retirement accounts with Fidelity and Vanguard, both of which I love. This post will focus on non-retirement or taxable accounts that I use and the apps that make them simple and fun to play with.

First up is Acorns. Acorn’s tag line is small acorns turn into mighty oaks and as we all know thanks to the power of compound interest this is very true. The Acorns app allows you to link your debit cards and every transaction you make is rounded up to the nearest dollar and the difference is deposited in your brokerage account. So for instance if I purchase something for $1.25 then $0.75 will be deposited into my brokerage account. Acorns has several pre-designed portfolios that you can choose from based on your risk tolerance and once your round-ups hit $5.00 they will automatically deposit it into your account which will purchase fractions of each investment in your portfolio. For someone that wants to just set it and forget it, this is a great app. In addition they offer educational articles to help novice investors learn more about what their money is doing.

Second on my list is M1 finance. M1 finance is an app that allows you to create your own portfolios and displays them as pies. You can make your pies up or choose from pre-existing pies designed to fit your investing desires. M1 also uses fractional shares so each investment can buy small slices of the whole pie to keep your asset allocation correct or you can purchase individual shares and the best part is there are no fees!!! M1 offers great educational articles to help investors make the best decisions.

The third app I’ve included is Robbin Hood. This is a full service brokerage account that charges zero fees for trades. You can purchase any type of stock, bond, index fund, or mutual fund but I like this app for purchasing single stocks. I believe in using low cost index funds as the core of my investment holdings but use a small amount of money to play with. This helps me to keep my hands off my long term retirement funds and gives me an outlet to play and speculate. Robbin Hood offers educational articles to better equip investors to make smart decisions.

The last app I chose to include is Ally bank. Ally is a full service bank that also offers full service brokerage accounts. The thing I like about Ally is they offer high yield savings accounts, currently my account is yielding 2.20% which is much more than most banks offer. Ally has a great app and it is easy to navigate and fund your accounts.

Thanks for reading and remember FIRE University is not a licensed investment or accounting company and everyone should consult a professional before making any financial decisions.

Do we take better care of other people’s money???

If you are working in corporate America, then you probably have to adhere to a strict budget. If you are like me you have to not only adhere to a budget but actually set budgets for others to live by. In our working lives we all have a boss that we answer to and it is that accountability that often forces us to track our spending very closely. In fact most of us plan and track our spending much better while at work then we do in our personal lives. I’ve had coworkers that can keep every receipt for reimbursement, track every mile traveled to claim mileage, run detailed weekly reports to ensure they hit their monthly budget, chase employees around to cut a few hours of labor, but never even glance at their personal bank statements or review their 401k investments to see what their personal money is doing, so what gives?

There are a couple factors that I believe explain this. First is the human desire to avoid pain and seek pleasure. We are incentivized to take good care of the company’s finances because we don’t want to get in trouble or look incapable and we often have monetary rewards in the form of bonuses or advancement opportunities for a job well done. Secondly we have bosses that hold us accountable and watch over us to ensure our success. So why don’t we place the same value on our personal finances? Well first we don’t have anyone holding us accountable and it is easy to allow ourselves to overspend. To solve this we assign students an accountability partner to hold each other accountable for their personal spending, I highly recommend you find someone in your life that can do the same. Secondly we don’t see the immediate reward for a job well done. This is where tracking spending and investing comes in. I recommend setting up a simple excel spreadsheet to track your expenses, investments, and overall net worth. This document will allow you to see where you are wasting money and set goals for savings. It will also help you to see the immediate rewards of putting more money into savings and once again allow you to see your progress. For added incentive run a couple scenarios in a retirement calculator to see what your current investments will be worth in 20-30 years. This should help to make a shift in your mindset, that by hitting your personal budget and savings goals, that you are effectively giving yourself a raise and promotion.

I believe that by using the same motivation and incentives in our personal lives that propel us to succeed at our jobs, that we can reward ourselves with wealth and freedom. Many in the FIRE (Financial Independence/Retire Early) community have Facebook groups you can join to be a part of a community of like minded people who can both help to hold you accountable and share ideas on how to speed up your progress towards financial goals. So give yourself a raise and start saving more today.

Thanks for reading.

FIRE University is not a licensed financial planner or accountant, please consult a professional before making and financial decisions.

Financial and Business lessons from The Game of Thrones.

Hello Class. Welcome back to Fire University. As many of you know I am a big fan of the Game of Thrones TV series and in today’s class we will discuss the financial and business lessons that can be learned from the show. Let’s start with the financial lessons.

Winter is coming

In the show the Stark family is famous for saying “Winter is coming” and I take that to mean that winter both literally and figuratively is coming, whether we are ready or not. In life we experience good and bad financial times. During the good times it is easy to forget about planning for the bad times and just have fun. Examples of this are not budgeting for car maintenance or home repairs. Logically we all know that it is a part of life for things to break or need repairs but often times we fail to plan or save for them. Many of you are aware of my advocacy for having a large financial emergency fund. I advocate for four months of total expenses as well as a separate account for future home repairs, car purchases, and just the unexpected things life throws at us. Many people will say that I am being to cautious but I’d rather be safe than sorry. In the game of thrones we see in the recent episode that Sanza say’s they didn’t budget for having to feed hundreds of extra troops let alone two dragons. Then she says “What do dragons eat anyways” to which Dany replies “anything they want.” I love that exchange but it is also a good example that not planning and preparing for the winter could mean certain death. During the harvest time food is plentiful but the leaders of Winterfell know that they must budget and allocate some of the excess for winter rations.

A Lanister always pays their debt

As you all know I despise debt. I believe that debt creates bondage but do acknowledge that debt leveraged wisely can yield large returns. Some debt is okay if it is used to purchase cash flowing assets or to buy a home that locks in a low interest rate on an appreciating asset, now I know some are saying but a house barely keeps us with inflation and that it has overhead maintenance cost to keep up and that you could get a much better return in the market. I agree with most of those statements but studies show that home ownership is one of the leading indicators of wealth accumulation and it locks in your monthly housing cost. The point of this is that if you have debt, pay it off and do it as quickly as possible. Your credit score is a reflection of your credit worthiness and measured by your ability to pay back loans as well as your income versus the amount of debt you have. In the Game of Thrones show we see that a person or family’s reputation is vital to their survival as it can make access to both capital and alliances with other houses.

Choose your partner or spouse carefully

One of the best gifts we were given was our ability to choose who we love and who we spend our time with. We should take this decision seriously because choosing the right or wrong person has the ability to not only make us happy or sad but also the power to greatly affect our wealth. In the time of GOT most people made marital choices based on their standing in society and what would best serve their family fortune. However in today’s times, we have the luxury to choose based purely off love. While love is arguably the most important part, it is also important to make sure our partner has the same views and desires when it comes to handling finances.

Now it’s time for the business lessons.

It is better to be loved than feared

Throughout the TV series we saw many rulers gain power through force and attempt to lead by fear. While this may work for a while, it is only a matter of time before the followers will either rebel or switch their allegiance to someone else. We saw Daenerys rise to power and build a following based off of her compassion for those that were enslaved. The former slaves followed her because they believed in her vision of the future. Later in the show we saw the people gravitate towards John who was a fair and honorable leader. In today’s business world a new leadership style called “servant leadership” has emerged and is gaining widespread popularity as well as yielding great results. The basis of it is that the leader is there to serve the employees, it is the bosses job to provide the resources necessary for the employees to succeed in their current roles and prepare them to advance in their careers. This is a stark contrast to the former style of autocratic leadership, in which managers made the decisions and forced the employees to comply.

S.W.O.T

One of the first things we learn in business school is how to perform a SWOT analysis. The word SWOT is an acronym for Strengths, Weaknesses, opportunities, Threats. This is a strategic way of thinking, that helps to design long term goals and strategies. Warren Buffet often talks about the businesses he invest in have a moat around them, by this he means they have a strategic advantage over their competitors. This may be in the form of technology, distribution systems, or being first to market. In GOT we saw many examples of this, from the Night King being able to raise the dead, to the moat of fire around Winterfell, to Daenerys fire breathing dragons. Each of these gave them an advantage that they could exercise over their competitors. In business, whether for your company, department, or for yourself it is best to define your strengths and work to make them as strong as possible, while finding others that are strong at your weaknesses. When you have time perform a SWOT analysis on yourself and use the results to know where to focus your time and attention.

FIRE University is not a licensed or registered financial planner or accountant, please speak to a professional before making any investment decisions.

Thanks,

FU

Balance. Enjoying today and planning for tomorrow.

Hello class and welcome back to Fire Univesity. Today I want to talk about something that is very personal to me and Mrs. FU. Recently my family received some bad news in the form of a health diagnosis. In light of dealing with the eventual death of someone we love and being forced to acknowledge our own mortality, it has caused us to reflect on finding the right balance between enjoying the present moment and saving for the future. Our family member is fairly young and faces a reality of not living much longer, having spoken to them they have regrets about waiting to do things until retirement as well as fears of not having saved enough to care for their spouse and kids. This created an interesting question about the reality of postponing spending money and having instant gratification versus saving and waiting to spend money until later in life. When speaking to older people that are near death, I don’t recall ever hearing one say they wish they had saved more or spent less, never a single person, their regrets are usually centered around the things they didn’t do. Things like staying in a job they didn’t like instead of pursing a dream job, or never having the courage to sell everything and move to a new place to live a life they dreamed of.  However I have never met an older person nearing retirement or in retirement that hasn’t said they wish they had started saving and investing sooner. That’s a weird combination isn’t it. When you think you have health and time, you wish for more money but when you are out of health and time you wish for more of both and could care less about how much money you have. I try to be mindful of this and live in a way that will not create regret later in life but it is so hard, there are so many things that pull at us for attention and time continues to pass, whether we like it or not. Kids grow up and become adults, parents grow old, and spouses both have different demands that seem to battle for attention. I wonder how many rich old people would trade it all to be a teenager again?

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Personally Mrs. FU and I are very frugal but because we have always lived that way we do not feel like we are sacrificing anything. Also as the parents of four kids we both prioritize saving to ensure their futures as well as ours. This is where the FIRE journey comes into play and why it is such a powerful lever for us to pull. Pursuing FIRE does take a lot of discipline and sacrifice, we could easily afford much nicer cars and a much larger house, however I am not convinced that either would provide more enjoyment or happiness. In fact I think that by learning to be present in the moment and by practicing gratefulness for the simple things in life it actually makes us happier and more thankful for the things we have. Since we have a simpler live style we are able to save a larger percentage of our incomes and therefor hope to hit retirement earlier than the average person. By not locking ourselves into large mortgages or ridiculously expensive car loans, we are able to not only save more but we are also able to enjoy more disposable income. So we are enjoying the present, while also saving for the future. Our shared goal or purpose is for Mrs. FU to retire before 50 years old and both of us spend time traveling and enjoying life doing the things we have always dreamed about doing. I think retiring any earlier than 50 would harm our long term financial goals such as paying for our kid’s college and saving enough to withdrawal 3% of our nest egg to live off of, which will give us the peace of mind to know our money will last as long as we do.

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There is peace in having a plan and knowing the math behind the plan, however when you see a life cut short it makes you rethink the why behind the plan. So is sacrificing in the present worth saving for something that you may never get to enjoy? Well in our opinion YES. For us the satisfaction of knowing that we can not only provide for ourselves in retirement, when we need our money to work for us, instead of us work for our money. Add to this the fact that our children will have a strong foundation to build on for their financial lives and we are confident that we are making the right decisions.

Another way of looking at this is that being financially independent would allow us to know that even in the absence of one of us, the other surviving spouse would not be destitute and unable to maintain the same quality of life. The thought of knowing that you would not only be unable to physically protect someone but that you would also be leaving them in financial ruin would make being sick even worse. The age old saying that money doesn’t buy happiness is true, however it does provide peace of mind and comfort knowing that your loved ones will be okay no matter what.

Thank you for joining us and remember that we are not licensed financial advisers or tax professionals, please consult with your financial specialist before making any financial decisions.