Tag: F.I.R.E.

Pessimism & F.I.R.E. – A Little Goes A Long Way

I have a secret to share with you… I think that a little bit of pessimism goes a long way towards achieving financial independence. When most of us start working, we’re chipper and happy and excited to be getting a paycheque. It’s lovely to have some spending power! And most of us use that power as quickly as we can. Sometimes, that results in huge debts that chain us to a paycheque. By the time many of us have lost faith that we will one day work at something we love, the financial obligations that were picked up along the way keep us tethered to employment. Without another source of money to replace our paycheque, we’re essentially stuck.

No one ever talks about this aspect of adulting in their graduation speeches… Those speeches are flowery and encouraging, and urge graduates to pursue their dreams. That’s fine and good and great if you can do it. However, I do wish someone could work in a nugget or two about building up some money on the side… just in case you’re among the unfortunate multitudes who won’t have the opportunity to do what you love and receive a handsomely large paycheque for doing it. But I digress…

Take some time to seriously ponder how much life-satisfaction you anticipate receiving from paid employment. Doing so is a powerful catalyst. I can almost guarantee that you will be motivated to pursue financial independence sooner rather than later. It takes a few years, but we all eventually realize that not everyone who works hard gets rewarded. There are those who aren’t good at office politics, and have no desire to expand their skill set in that area. Unfortunately, some people are the victims of harassment and bullying in the office. These are the main reasons why it’s a seriously good idea to add a drop of pessimism to your views on saving for the future.

It won’t hurt to consider what your options will be if you decide that you hate working and that you want to stop doing whatever it is that you’re paid to do. How will you pay for your life without an employer giving you a paycheque? Do you want to work even harder than you do now by starting your own business? Or would you prefer enough passive income to fully fund you the life you dream of? Maybe you’d enjoy the combination of a lower-paying-yet-absolutely-enjoyable job that’s bolstered by passive income from your investments?

Now, there’s always the possibility that you’re like a couple of my friends who absolutely love their careers. Like everyone, they have bad days at work but, for the most part, they love going to work. Read that again – they love going to work. They would do their jobs for free – that’s how much they love going to work!

It’s mind-boggling to me. Even when I loved my job, I never loved it that much. And over time, my like for my job has dwindled considerably. Many accolades and much credit should be given to Young Blue Lobster. Twenty year ago, YBL knew that working to 65 wasn’t a prominent dream for our life. YBL quickly paid off student loans, a car loan, and a mortgage. YBL stayed out of debt and re-directed those former debt payments to savings that were eventually invested in our TFSA, our RRSP, and our non-registered investments. Even before locating the F.I.R.E. corner of the internet, YBL was pursuing financial independence and funding our dream of retiring early.

At the time, YBL had an inkling that having a salary-replacing cashflow on the side would be a very good thing just in case anything went wrong with the regular paycheque. Looking back, I have to say that YBL was 100% correct. Our little army of money soldiers bolsters my investment contributions every month. In a year or two, those monthly dividend payments will exceed the contributions from my paycheque. That’s not too shabby as far as financial achievements go. Without that little sliver of pessimism fuelling my decisions way back when, my current side income would be meagre.

I want you to pursue your dreams. You’ve got one life and it should be the best one that you can achieve. At the same time, a touch of pessimism can help you to focus on how you can best make those dreams come true. Pessimism… a little goes a long way.

F.I.R.E. – A Refreshing New Perspective

For those who don’t know, F.I.R.E. is the acronym for Financial Independence, Retire Early. It’s a financial point of view that has gained traction in the past 10-15 years. People live significantly below their means in order to grow their money as fast as possible until they no longer need to work. Once they hit that point, they are considered financially independent. If they wish, they can choose to retire early at that point. There are a multitude of websites and blogs devoted to the F.I.R.E. way of life. I will admit that my personal finance coming-of-age was heavily influenced by the initial hardcore tenets of FIRE.

For a long time, I easily adopted the face-punching viewpoint of Pete who runs Mr. Money Mustache even though I was not going to give up some of things that he clearly eschewed. For a little while, I was also enamored with the draconian thriftiness espoused by Jacob’s on his website, Early Retirement Extreme, even though I would never choose to live that way. I was constantly searching for stories of people who lived well-below their means because I wanted to see how far I was willing to go to have money for my investments. When I found a poster on YouTube who only ate once a day in order to save money for investing, I realized that I had limits. Starving when you don’t have enough money is one thing. Purposely starving yourself in order to invest money is offensive to me. I decided to stop seeking the extremes.

Lately, a refreshingly new perspective has emerged. In my view, it is healthier and more welcoming than what I learned. The concept is an homage to living your best life while investing your money. Your money should be used to make your life as good as possible. This doesn’t mean going into debt. It doesn’t mean working forever. It does mean being laser-focused on that which is most important to you. Debts eventually get paid. Salaries increase, one way or another. Consistent contributions to investments will churn out capital gains and dividends. At some point, the gap between the cost of your monthly necessities and the cash flow coming to you will widen to an appreciable amount. This is called your disposable income. The new perspective is about figuring out how to spend that disposable income in a way to brings the most joy and happiness into your life.

I find the new perspective more persuasive than I would have even 5 years ago. One of my biggest challenges is finding balance between living today to the fullest while saving and investing just enough for tomorrow. Two authors come to mind. They’ve articulated ideas about living each day to the fullest, without ignoring the onus to take care of Future You. Specifically, I’m thinking about Ramit Sethi of I Will Teach You To Be Rich and his exhortation to live your rich life now. The other author is Bill Perkins, who has encapsulated the essence of the new perspective in his book book, Die With Zero.

What I like most about the new perspective is that it offers a sense of balance. It gives people permission to enjoy the present, and to enjoy spending a little bit of money today. The new perspective recognizes that time is fungible – once gone, it can never be reclaimed. Accordingly, everyone should figure out what is most important to them and spend their money accordingly in order to maximize the utility of their money while securing their financial future.

Ramit Sethi encourages people to pursue their rich life today. As I understand his message, he doesn’t want you to wait 10-15-20 years to start living well. He wants you to determine what you want and to figure out if you can incorporate it into your life today. Mr. Sethi advises people to ruthlessly cut out the stuff that doesn’t matter so that they can focus their money on the things that do.

I love this idea! For my part, cable TV is unimportant. I cut it out of my life 8 years ago, and I don’t really miss it too much. I can’t host Grey Cup or Super Bowl parties, but that’s the extent of the drawbacks to not have cable in my home. What I do love is traveling to new countries. Before the pandemic, I was able to fund 3 trips to Europe in the space of 4 years. For me, that was a huge accomplishment. My rich life definitely includes travel!

In Die With Zero, the author’s position is that dying with too much money means that you have deprived yourself of experiences that could have enriched your life. This book really challenged my views about spending, saving, and investing my money. Truth be told, my mind was blown! First of all, how could a person die with too much money? Was that even a thing? I really had to slow down and contemplate what the author was saying.

Speaking only for myself, this book forced me to consider whether I was spending money in ways that made me happiest. I’ve been saving consistently since age 21. I’d finally visited a fee-only financial planner to get an objective opinion on whether I could hit my financial goals. (The answer was a resounding “Yes!”) By the time I read Die With Zero, I was comfortably past the Coast F.I.R.E. point in my money journey. I was ready to contemplate the idea that I might not have been using my money in the best way possible. After reading this book, dying with un-spent millions no longer seemed like the wisest choice.

It’s truly not my intention to be the richest person in the graveyard. There are experiences that I’d like to have which will require me to open my wallet. Though I’m not entirely convinced that I should die just as my net worth hits $5.47, I appreciate the ridiculousness of dying with millions of dollars to my name. That money will only benefit my heirs. The opportunity for me to benefit from the money dies the moment that I do. While I intend to leave something to my heirs, I want to help and not hinder. There is an intrinsic value in attaining your own personal goals. I won’t deprive them of the chance to experience the pride of accomplishment.

Right now, I’m still searching for the sweet spot. In my humble opinion, the new perspective is going to gain traction. There are those who hate their jobs and want to leave as soon as humanly possible. To those unfortunate masses, I encourage you to change jobs or find a new career. Life is too short to be miserable at work. If changing jobs isn’t an option, then know that I completely understand why you’re willing to sacrifice time today and gamble that you’ll have the time tomorrow to enjoy your money when you eventually do quit.

There will always be hardcore adherents to the “sacrifice everything in the short-term to retire ASAP” view of F.I.R.E. However, that path to financial independence and early retirement is not palatable to everyone. As with most lessons to be learned in life, it is up to each of us to take what we need and to leave the rest. We alone are the ones who know best what we truly desire from our precious time here on Earth. We owe it to ourselves to learn new ideas, try them out, see if they work, keep them if they do, discard them if they don’t, and to do it all over again.