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Types of FIRE - Create the future you want!

Create the future you want. FIRE is all about spending more time on hobbies, volunteering, teaching, travelling! Do what makes you happy! FIRE has different meanings to everyone. Over time, the concept has evolved, there are several types of FIRE philosophies. FIRE is not a one-size fits all solution. It can be customized to suit your situation so that you can achieve your dreams. Some Common FIRE Philosophies that exist: LeanFIRE is a minimalist philosophy. The aim is to generate around $25,000 - $35,000 of annual investment income. This is enough income to maintain a minimalist lifestyle, without taking a job or investing further. BaristaFIRE is a step between CoastFIRE and LeanFIRE. You have a growing investment nest egg but it is not generating enough to maintain your desired lifestyle. Investment earnings are often supplemented by a part-time job, hence the Barista moniker. This is a great way to test the waters of early retirement, not having to work full-time. This is a happy medium of earning from investments as well as part-time work. CoastFIRE is when there is enough of a principal investment that the investment can coast along, earning enough over time to achieve your desired principal value at retirment age. CoastFIRE involves parking the principal investment amount and not drawing from it until retirement. This is a comfortable place, knowing that your retirement will be taken care of without having to make additional investments. FatFIRE is the ability to retire early without making any significant changes. FatFIRE involves having a large invested principal, that can provide annual revenues to furnish a very comfortable lifestyle. Generally, only high net worth individuals fall into this category. It is important to follow the FIRE philosophy that will best align with your desired goals and lifestyle. A minimalist lifestyle is more attainable, and a more lavish one will require additional investments and other sources of revenue. Whether you want enough to travel each year, or you're happy to just have your living expenses covered each month, there's a FIRE philosophy for every situation.

Getting started with FIRE!

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. Excel, Google Spreadsheets or is what I use) are great for this. You should end up with something like the following: Assets Debt Chequing Account: $2,000.00 Car Loan: $15,000 Mortgage: $393,000 Credit Card Balance: $825.00 / month Expenses Income 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!

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