Instant Gratification versus Patience

Generational challenges with time.

Recently I had a few mentoring sessions where we discussed the purpose of our investments. In our community, we all have the same goal:

We want to reach the Time Freedom Point, the point where our passive income or the distribution from our investments exceeds how much money we need to live the life we love to live.

That last part is a great source of another article. I am past my Time Freedom Point on the calendar a few years ago and had to realize that the life I had thought I wanted to live had changed.

Back to the recent mentoring sessions.

We discussed the issue of steadily putting money aside to accumulate investments in real estate. It used to be that the investments had to be either with a very low return or with considerable risk.

If you wanted to be safe, you could either invest or hold the money in savings accounts that did not pay any interest or invest in $50-incredments in tokenized real estate, hoping it would perform well till the day you needed the funds for the next residential property to add to your portfolio.

The beauty of availability of the tokenized real estate is a huge advantage but performance is not guaranteed.

With the savings account, you knew exactly what you got, however little it was.

One of our clients applied a smart solution by purchasing very broad stock index funds to have a better return than a savings account. That includes the risk of markets going down, as it happened briefly during the pandemic or in late 2021/early 2022. With that approach, one might have to hold off from buying a property until the market recovers.

Now, we can park money in high-yield savings accounts that have it available daily and pay interest slightly above inflation.

Still, even with interest rates at 4.5% in these accounts, money accumulates slowly.

Our mentoring discussions revolved around the patience we need to have to build a portfolio on our journey to the Time Freedom Pint.

I have detected that it is somewhat of a generational problem now. We are constantly inundated with things, orders, processes, etc. that lead to very quick results, gains, wins, etc.

If something takes six months or a year, the people in YouTube ads or on TV must voice a disclaimer telling us that their offer is not a get-rich-quick scheme -as if that was ever possible in less than years. (except for the lottery or gambling in a casino).

I was reminded of a movement I have been fascinated about when it was a really big deal in media and the millennial generation.

Having a strong desire not to live the same life as their parents, the millennials got intrigued — at least a good number of them — with

The FIRE Movement.

I did some digging and want to share what I uncovered, partially as a reminder (the movement still exists even though it is not that much in the media anymore) and partially as a source of reflection about the time and discipline it takes to reach certain goals. We, on the journey to our Time Freedom Points, need some of that discipline and willingness to sacrifice, even though it’s not nearly as much as the dedicated FIRE folks have.

Here it goes:

How to Achieve Financial Independence and Retire Early with FIRE

This is how it was placed in many ads in its heyday:

Have you ever dreamed of quitting your job and living a life of freedom and adventure? Do you want to escape the rat race and spend your time doing what you love instead of working for someone else? If so, you might be interested in the FIRE movement, a lifestyle choice that aims to achieve financial independence and retire early.

What is the FIRE movement?

The FIRE (Financial Independence, Retire Early) movement is a lifestyle movement with the goal of gaining financial independence and retiring early.

The model became particularly popular among millennials in the 2010s, gaining traction through online communities via information shared in blogs, podcasts, and online discussion forums.

Those seeking to attain FIRE intentionally maximize their savings rate by finding ways to increase income or decrease expenses, along with aggressive investments that again increase their wealth or income.

The Spectrum of FIRE

There are also two sides to the spectrum of FIRE: Lean FIRE and Fat FIRE.

Lean FIRE refers to the ability to retire early on a smaller accumulation of retirement income and limited living expenses which will require a frugal lifestyle during retirement. Lean FIRE adherents typically live on less than $40,000 per year and aim to save at least 75% of their income. They often practice extreme frugality, minimalism, DIY skills, Geo arbitrage, and side hustles to achieve their goals.

Fat FIRE refers to the ability to retire early due to a large amount of accumulated wealth and passive income with no concerns about living expenses during retirement. Fat FIRE adherents typically live on more than $100,000 per year and aim to save at least 50% of their income. They often enjoy a luxurious lifestyle, travel frequently, and indulge in their hobbies and passions.

A hybrid of these two is known as Barista FIRE, which refers to a semi-retired lifestyle of working part-time for some supplemental income or retiring fully but with a partner who continues to work. Barista FIRE adherents typically live on $40,000 to $100,000 per year and aim to save at least 60% of their income. They often enjoy a balanced lifestyle, pursue meaningful work, and have more flexibility and freedom.

In all versions, the objective is to accumulate assets until the resulting passive income provides enough money for living expenses throughout one’s retirement years. So far, the goal is the same as our Time Freedom Point movement.

Many proponents of the FIRE movement suggest the 4% rule as a rough withdrawal guideline, thus setting a goal of at least 25 times one’s estimated annual living expenses.

This is a very important point that the media has shortened as described above. The mathematical theory of the 4% number states that you are not exhausting your funds if you only take 4 %/year if the underlying market the funds are parked in gains of about 7% on average on the investments.

That’s where the media stopped reading or reporting. The actual theory and calculations for this approach are based on 0% inflation. So, when you read the full set of rules it states:

4% of the available funds’ value + inflation to withdraw each year.

This makes sense as inflation is reducing the purchasing power of money and if money buys you less and your system is built on the fact that you need a certain amount of money to live, you need to adjust for inflation.

Keep in mind that the movement started around 2010 when we just came out of the financial crisis and the FED flooded the market with low-interest money. That caused inflation to be low trending towards zero.

Many fans of the FIRE movement only look at the 4%. In 2022 we had an average of about 7% inflation. If you applied the rule that year, you would have taken 11% of your funds out of your portfolio.

Such a large distribution will lead to harm, and you will no longer be able to live longer than your funds. This is especially true if we have many years of elevated inflation and if you have already transitioned from work to passion life.

Upon reaching financial independence, paid work becomes optional, allowing for retirement from traditional work decades earlier than the standard retirement age.

In high inflation years, it might not be optional anymore. You might have to go back to work. If that were to happen to you right now, it might not be a problem as there is a lot of work available. In a few years, with persistent inflation and high interest rates, you might struggle, especially if you established a lifestyle without work.

In our Time Freedom Point movement, we don’t have to worry about that issue.

The desire to retire early and live a financially independent life has been around since the beginning of organized labor. However, the modern-day FIRE movement really started after 2000 when blogs such as Financial Samurai and Early Retirement Extreme launched in 2007 and 2009.

In 1992, the book, Your Money Or Your Life, was published by Joseph R. Dominguez, Monique Tilford, and Vicki Robin which helped encourage people to choose their lives over grinding away at work forever. Joe unfortunately died in 1997, and the book really didn’t get mainstream until the rise of the internet and blogs in the early 2000s.

The first blog that started regularly talking about FIRE was Early Retirement Extreme by Jacob Lund Fisker in 2007. Jacob discussed extremely radical ideas such as living alone in a trailer in the woods off less than $8,000 a year to achieve financial independence.

He helped early adopters to question whether they were frugal enough.

The second site that really helped ignite the modern-day FIRE movement is Financial Samurai by Sam Dogen in July 2009 with the motto, “achieving financial independence sooner, rather than later.”

Sam shared his personal journey of retiring from his corporate job at age 34 after saving over 50% of his income for 13 years and investing in real estate and stocks.

This is probably the best combination to reach the goal of early retirement soonest. It still requires mentorship to read the economic environment correctly. If I had to choose and I were in my twenties or thirties, that’s what I would do. I would keep the stock portfolio very small and not use index funds, but overall, it is the combination I recommend — in case you are considering the FIRE strategy in combination with the Time Freedom Point strategy.

Sam was one of those mentors and provided practical advice on how to optimize taxes, negotiate severance, invest wisely, and live well on less.

Since then, many other blogs, podcasts, books, documentaries, and online forums have emerged to spread the word about FIRE and inspire people to pursue their own version of financial freedom.

The main founders and current actors of the FIRE movement

The main founders of the FIRE movement are considered to be Vicki Robin and Joe Dominguez, who wrote Your Money or Your Life in 1992; Jacob Lund Fisker, who started Early Retirement Extreme in 2007; and Sam Dogen, who started Financial Samurai in 2009.

Some of the current actors of the FIRE movement are:

- Mr. Money Mustache: A popular blog by Pete Adeney that advocates living a frugal yet badass life by spending less than you earn and investing the rest.

- ChooseFI: A podcast and online community by Jonathan Mendonsa and Brad Barrett that covers various topics related to financial independence such as saving, investing, entrepreneurship, travel hacking, side hustles, and more.

- The Mad Scientist: A blog and podcast by Brandon Ganch that provides strategies and tools to help people reach financial independence faster.

- Millennial Revolution: A blog by Kristy Shen and Bryce Leung that chronicles their journey of retiring from their software engineering jobs at age 31 and traveling the world on their investment income.

Playing with FIRE: A documentary by Scott Rieckens that follows his family’s quest to join the FIRE movement and features interviews with some of the leading voices in space.

How frugal one needs to live to achieve FIRE.

There is no one-size-fits-all answer to how frugal one needs to live to achieve FIRE. It depends on many factors such as income level, spending habits, lifestyle preferences, investment returns, retirement goals, etc.

However, a common metric that is used to measure progress towards FIRE is the savings rate, which is the percentage of income that is saved and invested. The higher the savings rate, the faster one can reach FIRE.

Keep in mind that our residential real estate investments reach returns of 20% annually if we keep the properties very long-term (27 years+).

In pure FIRE for example, assuming a 7% annual return on investments and a 4% withdrawal rate, here is how long it would take to reach FIRE based on different savings rates: (this is without inflation)

- At a 10% savings rate, it would take 51 years to reach FIRE.

- At a 25% savings rate, it would take 32 years to reach FIRE.

- At a 50% savings rate, it would take 17 years to reach FIRE.

- At a 75% savings rate, it would take 7 years to reach FIRE.

As you can see, increasing the savings rate can dramatically reduce the time to retirement. However, this also means living on less and making some trade-offs.

For some people, this might be worth it to achieve financial freedom sooner. For others, this might be too extreme and not enjoyable. I am one of those people — the others.

Therefore, one needs to find their own optimal balance between saving and spending, based on their personal values and goals.

There is no right or wrong way to do FIRE, if one is intentional and mindful about their financial decisions.

How to achieve FIRE

The basic formula to achieve FIRE is simple:

Spend less than you earn and invest in the difference.

However, the implementation can be challenging and requires discipline, patience, and creativity.

Here are some general steps to achieve FIRE, the Time Freedom Point, or a combination of both:

1. Track your income and expenses. The first step is to know where your money is coming from and where it is going. You can use tools such as Mint, YNAB, or Personal Capital to track your cash flow and net worth. This will help you identify your current savings rate and areas where you can optimize your spending.

2. Reduce your expenses. The next step is to cut down on unnecessary or wasteful spending that does not align with your values or goals. This could include things such as eating out less, canceling unused subscriptions, switching to cheaper providers, buying used items, etc. The idea is not to deprive yourself of happiness, but to focus on what truly matters to you and eliminate the rest.

3. Increase your income. The other side of the equation is to increase your income by earning more money from your primary job or other sources. This could include things such as asking for a raise, changing careers, starting a side hustle, selling your skills or products online, etc. The more income you have, the more you can save and invest. This is what I focused on to increase my investments without having to live off Ramen soup every day.

4. Invest wisely. The final step is to invest your savings in a diversified portfolio of assets that can generate passive income and grow over time. This could include things such as stocks, bonds, real estate, index funds, ETFs, etc. The key is to invest consistently, avoid high fees and taxes, and stick to your strategy regardless of market fluctuations.

This is the general approach to point #4. I recommend doing this a little more deliberately. Here is how I would distribute funds now, in 2023 if I were to begin a combination of FIRE and Time Freedom Point investment strategy:

4a. Establish a distribution pattern.

• I suggest putting 50% of the savings rate into high-yield savings instruments like AMEX HYSA or short-term bonds that pay interest above inflation (4.5%–6.5%).
• For the other 50% of the savings rate: Think about the field of technology, art, industry, etc. that you are passionate about and see a bright future. For me, there are two fields I like a lot: Electrification of transportation, currently mainly electric cars and grid storage batteries, and AI. For the second 50% of the savings rate, select the best representatives of these passion areas and buy stocks. I invest steadily in Tesla and Palantir. You might identify more than two companies, but I suggest focusing on no more than 5 in total. Check their progress and positioning every quarter and keep buying their shares. Ideally, if you can, buy with a certain amount of money each month. If possible, double the investment into your few selected stocks when their price is below the 200-day moving average and keep the normal monthly amount when the price for the stock is tracking above the 200-day moving average.
• Maintain the distribution pattern of 50/50 described above every month until your savings account or bond account has reached a value of approximately $30K — $40K. At this point, use that money to purchase your first and subsequent residential real estate properties.
• Add the positive cash flow from your residential property to your monthly savings rate. I know that this will turn the percentages into crooked numbers. First, just keep looking at your regular income, take the savings rate you decided to apply, and identify the amount you plan to save. Then add the positive real estate cash flow and apply the total amount again 50%/50% as shown above.

5. Monitor your progress and adjust accordingly.

Along the way, you should monitor your progress toward your FIRE goal by tracking your net worth, passive income, withdrawal rate, etc.

You should also review your expenses and income periodically and adjust as needed. You might also want to consider different scenarios such as inflation, market crashes, health issues, etc., and plan accordingly.

Most importantly, any time you get a raise in your job or add another income stream, either from investing into another cash flow-producing property or a side gig or whatever it might be, recalibrate the distribution to be 50/50 from regular income sources and 100% from the positive cash flow of properties.

When retirement goals can be met realistically for someone with an average employee income

The answer to when retirement goals can be met realistically for someone with an average employee income depends on several factors such as:

- What is the average employee income in their location?

- What are their current expenses and expected future expenses?

- What are their desired retirement lifestyle and spending level?

- What are their expected investment returns and withdrawal rates?

- How much do they have saved already and how much can they save each month?

To illustrate this with an example, let’s assume the following:

- The average employee income in the US is $51,168 per year.

- The current expenses are $40,000 per year and the future expenses are expected to be the same (adjusted for inflation).

- The desired retirement lifestyle and spending level are also $40,000 per year (adjusted for inflation).

- The expected investment returns are 7% per year and the withdrawal rate is 4% per year. (it should be plus inflation but that makes it really complicated)

- The current savings are $0, and the monthly savings are $930 ($51,168 — $40,000 / 12).

Using a FIRE calculator, we can estimate that it would take about 28 years to reach FIRE with these assumptions.

However, this is just an example based on some assumptions that might not apply to everyone. To get a more accurate estimate of when retirement goals can be met realistically for someone with an average employee income, one should use their numbers and adjust them as needed.

The challenges of the FIRE movement

The FIRE movement is not without its challenges and drawbacks. Some of the common ones are:

• Social pressure: Many people might face criticism or ridicule from their family, friends, coworkers, or society in general for pursuing FIRE. They might be seen as lazy, selfish, irresponsible, and no fun.
• Media pressure: We are constantly bombarded with schemes that promise quick or almost immediate success. Just think of all the weight loss diets, gym membership schemes, the latest investment schemes in Bitcoin or companies that are about to IPO, etc.

The FIRE Movement in Perspective

The FIRE movement is not without its critics and challenges. Some of the common criticisms and obstacles include:

- The FIRE movement is only for privileged people who have high incomes, no debt, no dependents, and no health issues.

- The FIRE movement is unrealistic and risky, especially in the face of market volatility, inflation, unexpected expenses, and longevity.

- The FIRE movement is antisocial and selfish, as it encourages people to isolate themselves from society and contribute less to the economy and the community.

- The FIRE movement is boring and unfulfilling, as it deprives people of the purpose, structure, and social interaction that work provides.

However, these criticisms and challenges can be addressed or overcome by adopting a more flexible and adaptable approach to FIRE. That’s why I like the combination with our Time Freedom Point movements if someone wants to have more flexibility and not commit to one or the other.

Conclusion

The FIRE movement is a lifestyle movement to gain financial independence and retire early. It is based on saving and investing a large portion of your income until you have enough passive income to cover your living expenses for the rest of your life. That’s the same goal as we have in the Time Freedom Point movement.

The FIRE movement has a wide spectrum that ranges from Lean FIRE to Fat FIRE to Barista FIRE. Each one has its own advantages and disadvantages depending on your preferences and goals.

The FIRE movement also has its critics and challenges that question its feasibility, sustainability, and desirability. However, these can be addressed or overcome by adopting a more flexible and adaptable approach to FIRE.

The FIRE movement is not for everyone, but it is for anyone who wants to live a life of freedom and adventure. Instead of being a drastic saver sacrificing a lot of pleasures, the combination of FIRE with our Time Freedom Movement provides a wonderful balance I hope you consider.

FIRE portfolios struggle in times of high inflation, limited stock market performance, and times of high unemployment. Worst case, these things could all exist at the same time, like in a recession, and could last a few years.

Balancing FIRE with the Time Freedom Point strategy provides relief. Due to our residential real estate portfolio, we gain value in good economic times, developing equity and appreciation we can borrow against if really needed. In addition, while FIRE portfolios struggle for people already retired from work in times of high inflation, we smile as our rental income and subsequent cash flow increase while our cost for the financing of the properties remains the same.

This last part is especially true when looking at longer periods. If you develop a residential portfolio over 10 years, initial struggles with limited or low cash flow will be struggles from the past. If you retire with your portfolio and inflation rises, unemployment rises and the stock market or the economy of not doing so well, your portfolio of properties will continue to provide income that keeps increasing as rents increase during times of elevated inflation.

That’s why it is a perfect counterbalance to FIRE for anybody who does not want to do 100% FIRE or 100% Time Freedom Point. All you really need is patience, a mentor, and the strength to show the doubters that you can stick to a plan long-term.