What's in Envelope Number Five?

Every generation has dealt with it; some more successfully than others. To serve, entice, mislead and help those new generations, the purveyors of happy answers always seem ready to parcel out sound advice on money management. The financial advice comes in new flavors and colors but the taste remains the same. It takes hard work to manage your money and in our capitalistic society, the carnival barkers are always there to help you along the way or so they say.

Now-a-days: it’s Buy now – Pay later. Student debt, Consumer debt and the national debt have become distasteful tidbits of conversation best left to crisis management. For many, instant gratification seems to be the answer to everything. Order it on line this morning, have it on your door step by this afternoon. The bill will come later so don’t worry about it now.

When Sharon and I first got married, ours was a different world than it is today. In the greater scheme of things, it was plainly old-fashion, neither better nor worse than today, just different.

Back in the prehistoric ages of the early 70s, we were living outside of Baltimore, Maryland in a suburb called Reisterstown; a colonial outpost back in the day. I was working at the Maryland Center for Public Broadcasting and Sharon was a stay-at-home mom.

I wanted to buy a house. Sharon was non-plus but insisted that if that was our goal then saving for it should be our total focus. She decided to budget all our expenses out of envelopes. I think she had a total of ten envelopes. If there was no money in the envelope by the end of the month, no can buy. It was our version of forced savings and it didn’t hurt us one bit. Granted, we would often miss out on the latest, greatest movie in town. We weren’t looking to live in a fancy new-build. We didn’t drive the latest model car. Summer vacations were one week away, someplace, but nothing fancy.

Starting out, we had splurged on a 3-week honeymoon in the Virgin Islands. Then our first rental was the top floor of a duplex in town. Moving to Tennessee, it was another rental. In Maryland, it was a year in an apartment and then we focused our financial energy on savings for the down-payment for our first house.

Our first home cost us $25,000. A year later, our second home in Apple Valley, Minnesota was $49,700. We’ve been there ever since. Our continuing savings plan was very simple. First came money set aside for the kid’s college education and only after that, did we start to save for retirement.

The engines driving our savings came from two incomes, my side hustles in business and real estate and a simple, yet very comfortable, lifestyle that fit our personalities. We’ve always tried to be thrifty smart and not stupid cheap. Our spending habits balanced each other out. I hate to spend money on anything. Sharon is more rational and reasonable in our purchases.

That simple savings plan has worked well for us. But time changes all things and recently I came across a fascinating article about another approach to savings for younger generations. I was jaw-boning about this new approach to financial literacy with an investor friend of mine. 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. For the two of us, that would be anyone under the grand age of sixty. 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.

Sprinkled throughout the web site are some interesting points about good old simple planning ahead for retirement. For many 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 never mentioned that that period in our lives is when we generally incur a lot more expenses than later on in life.

The FIRE movement has many solid, common-sense arguments in its favor. While I have no desire to poke holes in their concept, I do find one equation that is either seldom mentioned 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.

In the end, I think those FIRE proponents and I are probably talking about the same ‘means to an end.’ I’ve always felt that living within ones means, spending money wisely but still ‘having a life’ is the best way to go.

It doesn’t hurt to be able to recognize the difference between ‘having to have’ verses ‘wanting to have.’ Our good old capitalistic society thrives on the economic engine of consumption and always wanting more. But it doesn’t have to.

Real success lies in ‘living a satisfying, fulfilling life.’ 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, used, enjoyed and relished as if it were your last day on earth.

Because at some point, it will be your last…and all the money in the world won’t make up for lost time or opportunities to live your life the way you want to.

Just sayin’.

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.