Updated: Aug 10, 2020
The first question I asked when I heard about fire is "How do I get started?"
While this is a very key question it is not the most important, I feel the most important is;
"Are you ready to do anything to make a change?"
When I say anything, I mean it.
"For most individuals this consists of gathering approximately 20-25x their annual expenses in investment principal which allows for a 3-4% annual withdrawal plus room for the initial principal to grow off average market gains of 4-8%."
FIRE can be a massive disruption to some lives and is not for everyone. However I do believe everyone can benefit and improve their financial standing from the various techniques it provides.
- Instead of buying a new car, could you buy a used one?
- Instead of eating out three nights a week, could you eat out once every two weeks?
- Instead of going out to a concert, could you go for a hike?
- Instead of checking out that new movie, could you wait until it can be watched at home?
- Do you NEED that new cell phone, or is your current one still working (Could it be fixed)?
If you could answer yes to the above you are ahead of the game! FIRE for me is the understanding that you are willing to make sacrifices for a better life overall.
The FIRE answer for the above questions;
-Buying a used car three years old will save you on average 30-60% of the cost of a new car
-Eating out once every two weeks instead of three nights a week will save you ~$180 ($30/Person/Meal)
-Cost of hike will almost always be less then going to a concert costing only gas which could be pooled or shared with others
-Renting a movie at home $~5 instead of $15 (plus if you are like me popcorn/drink(~$15-20)
It also does not mean eating only rice and beans and never having nice things. You need to reward yourself along the way.
Three steps on the path...
Step 1 - What do I have
Step 2 - How do I save (and increase this savings amount?)
Step 3 - Now that I am saving how do I continue grow my nest egg?
Step 1 - What do I have?
First step is to identify what income, liabilities, expenses, debt, assets, bank accounts, investment and track them all in one location. Go through your bank account and categorize each expense you made in the past 3 months. Tools such as Mint help to automate this but can be as simple as a spreadsheet.
You should end up with something like the following:
Chequing Account: $2,000.00 Car Loan: $15,000
Credit Card Balance: $825.00 / month
Cell Phone: $115.00 / month Individual 1 - Salary: $60,000 / Year
Car Loan: $389.57 / month Individual 2 - Salary: $60,000 / Year
Groceries: $150.00 / month (average)
Eating out: $325.00 / month (average) Investments
Entertainment: $450.00 / month (average) 401k(RSP): $1,750
Gym Membership: $75.00 / month
Gas(auto): $250.00 / month (average)
Utilities: $350.00 / month (average)
Mortgage Payment: $2,250.00 / month
Health Insurance: $265.00 / month
In the next post we will cover what to do with all this information you have gathered along with finding out about different paths of FIRE and which one might work for you, it may seem cumbersome but it is the most important step.
It is also critical the above numbers you gather are accurate as future decisions will now be made off of this. If you cheat/lie/make up numbers, you are only going to hurt yourself and be setup for failure. Be real with yourself!