For the Money

Brian and Amy are teaching their three kids about financial literacy. So are Melanie and Scott. The Colorado kids have all received books on finance and money management. It’s a great introduction to the wonderful world of cash, credit cards and debit. In Minnesota, Brennan and Charlotte already have part-time jobs in the neighborhood and are learning common sense financial lessons. These are money management truisms that a lot of adults could/should probably revisit themselves.

One of the best books I’ve read on money management was written by a rabbi out of Washington, D.C. He talked about our own personal relationship with money and how it can affect us all from early childhood on until the end.  

He states: “Real wealth, in financial terms, is having enough and being content. Going beyond the financial realm, real wealth means living a life in sync with your personal values. This results in a sense of “wellth,” which is the real reward we can have in our life.

Spending time in a resort town like Palm Springs can be an exercise in excess, over-indulgence and material worship. It’s California, so, of course, real estate often plays an elevated role in one’s personal finances. Yet here, like everywhere else on the plant, folks can have some very strange ideas about real estate.

Some of the more naïve comments go like this:

“This is what I want for my property because it’s worth it.”

            “If it goes up in value, I’m a genius, if it goes down, it’s the marketplace.”

            “Real estate always goes up in value (not around 2008).”

            “They aren’t making any more land.”

“If you own property, you must be rich” (forgetting about mortgage payments, maintenance costs, taxes, insurance, utilities, etc.)

I think my kids are on the right track teaching their children about financial literacy. Since before the dawn of time (or at least it seems that way) financial advisors have been telling us how to save for our retirement. For a long time, they claimed there was some kind of magic formula and if you were lucky enough to reach that equation, you’d be ‘set for life’. They, of course, knew the secret route on that successful journey toward retirement bliss and happiness.

At last count, it had reached a zenith of one million, two hundred and fifty thousand dollars. Once there, you were assured (according to them) of a comfortable retirement…without ever really defining what that is supposed to look like.

A while back, I was jaw-boning about this approach to planning for retirement with a retired school administrator. He’s written a book about safe, sane investing aimed at the educational community. As a past educator, he knows that many of his fellow teachers are not as financially savvy as they should be. We talked about our own divergent pathways to retirement and he mentioned a new movement that he’s become intrigued with now.

It’s called FIRE and it purports to have found a new route to financial freedom for the younger generations. My friend tells me that millennials in particular seem to have gravitated toward this new ‘routine in financial living. FIRE is an acronym for ‘Financial Independence, Retire Early.’ To better understand the concept, I’ve borrowed some of the high points of this philosophy from the Investopedia web site.

The web site explains that: ‘Financial Independence, Retire Early (FIRE) is a movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit.

Born out of the 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez, FIRE came to embody a core premise of the book: People should evaluate every expense in terms of the number of working hours that it took to pay for it.

Key Takeaways of FIRE

• Financial Independence, Retire Early (FIRE) is a financial movement defined by frugality and extreme savings and investment.
• By saving up to 70% of their annual income, FIRE proponents aim to retire early and live off small withdrawals from their accumulated funds.
• Typically, FIRE followers withdraw 3% to 4% of their savings annually to cover living expenses in retirement.
• Detailed planning, economic discipline, and wise investment are key components in achieving a FIRE retirement.
• The FIRE movement was inspired by the 1992 book Your Money or Your Life, written by two financial gurus.

The FIRE movement takes direct aim at the conventional retirement age of 65 and the industry that has grown up to encourage people to plan for it. By dedicating a majority of their income to savings, followers of the FIRE movement hope to be able to quit their jobs and live solely off small withdrawals from their portfolios decades before they reach age 65.

To cover their living expenses after retiring at a young age, FIRE devotees make small withdrawals from their savings, typically around 3% to 4% of the balance yearly. Depending on the size of their savings and their desired lifestyle, this requires extreme diligence to monitor expenses as well as dedication to the maintenance and reallocation of their investments. Several FIRE retirement variations that dictate the lifestyle that the FIRE movement’s devotees are willing and able to maintain have evolved within it, as reported by Forbes Advisor.

• Fat FIRE—This is for the individual with a traditional lifestyle who aims to save substantially more than the average worker but doesn’t want to reduce their current standard of living. It generally takes a high salary and aggressive savings and investment strategies for it to work.
• Lean FIRE—This requires stringent adherence to minimalist living and extreme savings, necessitating a far more restricted lifestyle. Many Lean FIRE adherents live on $25,000 or less per year.
• Barista FIRE—This is for people who want to exist between the two choices above. They quit their traditional 9-to-5 jobs but use a combination of part-time work and savings to live a less-than-minimalist lifestyle. The former lets them obtain health coverage, while the latter prevents them from dipping into their retirement funds.

Most people think that FIRE is meant for people who can pull in a substantial income, generally in the six figures. And indeed, if your goal is to retire in your 30s or 40s, that probably is the case. However, there is plenty for everyone to learn from the principles of the movement that can help people save for their own retirement and even achieve an early one, if not quite as early as 40.’

Sprinkled throughout the web site are some interesting points about good old simple planning ahead for retirement. For many young folks, that’s easier said than done. One pundit commented that the best time to save is when you’re first starting out in a new job or getting married and settling into a new lifestyle. Of course, he failed to mention that that period is when we generally incur a lot more expenses than earlier in life. If you are married, have kids, a house payment and other household expenses then saving for retirement usually isn’t high on your radar scope.

The FIRE movement has many solid, common-sense arguments in its favor. While I have little desire to poke holes in their concept, I do find one equation that is either ignored or just passed over briefly; that is, living the life you want to live. Postponing life events, small pleasures and everyday occurrences just to save a buck doesn’t seem to me a good way to spend one’s life.

The web site argues, quite convincingly, that: ‘no one can achieve a secure retirement without investing in their retirement savings. FIRE adherents invest larger portions of their income than the average person will want to. But the principle of setting aside a set percentage of your income every month for investment—and starting to do that as early as possible—will allow you to grow your retirement savings to a point where they can assure you financial stability in your later years.’ It’s not exciting or adventurous but it gets the job done. Frankly, it’s plain vanilla investing and skipping the potholes sometimes hidden in crypto currency, investing in sports teams, Robin Hood investing and other schemes that only PT Barnum could appreciate.

It certainly helps to be able to recognize the difference between ‘having to have’ verses ‘wanting to have.’ Our capitalistic society thrives on the economic engine of consumption and always wanting more. A recent advertisement for Lincoln automobiles proclaims that: ‘Owning a Lincoln means you have arrived.’  No, it doesn’t!

It just means you’ve bought into the American Dream of having more and feeling good about yourself. Real success lies in ‘living a satisfying, fulfilling life’ and not having a new car in the driveway just to impress your neighbors. Having a lot of assets is less important than knowing you control them, not the other way around.

Strength is in knowing you could if you wanted to but you choose not to. It means spending as much time as you can with your kids and/or grandchildren when they’re young. It means spending quality time with your spouse or partner in life. It means taking the time to ‘smell the roses’ and treasure each day as a gift to be shared, enjoyed and relished as if it were your last.

Because at some point, it will be’ that point’…that all the money in the bank can’t make up for lost time or opportunities to ‘live your life.’ That’s a lesson I hope my grandchildren can grab on to early in their money-earning lives.