WEBVTT - FIRE (Financial Independence, Retire Early) - Does it work? 0:00:09.400 --> 0:00:12.280 Hello, and welcome to The Australian's Money Puzzitive podcast. I'm 0:00:12.360 --> 0:00:15.320 James Kirby, the World's editor at The Australian. Welcome aboard 0:00:15.360 --> 0:00:19.919 everybody you know. Occasionally I'm prompted to cover an issue, 0:00:20.239 --> 0:00:24.239 what you might say, like by public demand. And I 0:00:24.239 --> 0:00:28.920 can tell you that this fire movement FIRI fire movement, 0:00:29.960 --> 0:00:35.320 Financial independence Retire Early, that's the acronym. It's been knocking 0:00:35.520 --> 0:00:39.199 on my door for some time. Comes up regularly in correspondence, 0:00:39.280 --> 0:00:43.320 comes up in conversation, and I find people love this 0:00:43.479 --> 0:00:49.920 idea and it's, you know, a subject of videos and books, documentaries. 0:00:50.600 --> 0:00:52.120 For what it's worth, it all goes back. 0:00:51.960 --> 0:00:54.640 To a book that came out in nineteen ninety two 0:00:54.680 --> 0:00:57.960 called Your Money or Your Life. I think sooner or 0:00:58.000 --> 0:01:00.600 later we might have a fire advocate on the show. 0:01:01.080 --> 0:01:02.520 But first of all, we're going to have a look 0:01:02.560 --> 0:01:06.399 at it and examine it really and to see what 0:01:06.600 --> 0:01:09.319 it is and what are its pros and cons. I 0:01:09.319 --> 0:01:11.119 wanted to get someone who could really talk about it. 0:01:11.640 --> 0:01:13.720 I've got the idea guest, of course, it's. 0:01:13.600 --> 0:01:16.200 James Gerard of Financial advisor dot com. 0:01:16.200 --> 0:01:18.760 How are you, James, I'm doing well. Thanks for having 0:01:18.800 --> 0:01:19.920 me on James. 0:01:20.000 --> 0:01:22.920 I imagine you've had people come up to you on 0:01:22.959 --> 0:01:25.600 this one. And I've had people. I haven't actually asked 0:01:25.640 --> 0:01:27.200 you that. Have you had people come up to you 0:01:27.280 --> 0:01:29.800 and talk about it fire? The fire movement? 0:01:30.120 --> 0:01:32.440 Yeah? I have, yes, So that said, can you help 0:01:32.480 --> 0:01:33.720 me achieve fire? 0:01:34.400 --> 0:01:36.120 Yeah? It's interesting, isn't it. 0:01:36.160 --> 0:01:39.640 You get a concept that everyone you know. It's like 0:01:39.760 --> 0:01:43.279 everyone already knows this, but you if you conceptualize something. 0:01:43.560 --> 0:01:45.400 I was just thinking about this and I was thinking 0:01:45.400 --> 0:01:48.640 about this thing in Ireland called the Wild Atlantic Way, 0:01:49.280 --> 0:01:52.160 and so I grew up done around there and it's 0:01:52.200 --> 0:01:54.520 it's a strip of coast and there was all these 0:01:54.520 --> 0:01:57.800 towns on it and everyone they're always nice. It's fine. 0:01:57.840 --> 0:02:00.160 It's all very interesting West coast of Ireland. Everyone of 0:02:00.200 --> 0:02:05.480 the tourist level. But absolutely brilliant marketing ploy. Maybe a 0:02:05.520 --> 0:02:08.760 decade ago or whatever, the Irish Tourism Board came up 0:02:08.760 --> 0:02:10.760 with this thing, the Wild Atlantic Way. 0:02:10.840 --> 0:02:13.320 It never existed, right, no, never heard of it. They 0:02:13.440 --> 0:02:15.160 just let it up in a boardroom. 0:02:15.520 --> 0:02:18.200 And it has been so successful and you meet people 0:02:18.240 --> 0:02:20.320 and they say, I want to do that. The Wild 0:02:20.320 --> 0:02:24.120 Atlantic Way. It captures people's imagination. It's the same towns, 0:02:24.120 --> 0:02:27.400 it's the same roads, but it just managed to get 0:02:27.440 --> 0:02:31.160 it in a way that people could have this particular 0:02:31.360 --> 0:02:34.920 focused ambition, and I think Fire is very similar financial 0:02:34.960 --> 0:02:40.000 independence retire early. Before we kick it around, we have 0:02:40.080 --> 0:02:43.640 to explain to people what it is if they don't 0:02:43.680 --> 0:02:50.840 already know, Like, could you explain the core proposal if 0:02:50.880 --> 0:02:52.840 you like of what FIORI Fire is. 0:02:53.560 --> 0:02:57.080 Sure, I'll try to explain it. In a nutshell. It's basically, 0:02:57.400 --> 0:03:01.560 most people work from the start, working between eighteen to 0:03:01.639 --> 0:03:05.639 twenty five. They'll work forty or fifty years, they'll retire, 0:03:06.200 --> 0:03:08.919 usually in their sixties, and then they'll live thirty or 0:03:08.960 --> 0:03:13.880 forty years into retirement. That's what happens traditionally. Under fire, 0:03:14.240 --> 0:03:18.760 it's well, let's accelerate the wealth accumulation park, let's work 0:03:18.800 --> 0:03:22.840 for less years and enjoy more years in retirement. So 0:03:22.919 --> 0:03:27.400 to do that, they're basically sacrificing enjoyment today so that 0:03:27.480 --> 0:03:31.160 they can retire early and enjoy themselves later. So what 0:03:31.200 --> 0:03:35.320 that means practically is that they save a lot. They 0:03:35.680 --> 0:03:38.040 aim to save between fifty to seventy percent of their 0:03:38.040 --> 0:03:40.920 their incomes. They try and retire between the ages of 0:03:41.000 --> 0:03:43.960 thirty and fifty and in terms of how much they 0:03:44.000 --> 0:03:46.880 try and save up, they go, well, I probably need 0:03:46.960 --> 0:03:51.920 about twenty five times my annual expenditure, because if I 0:03:52.120 --> 0:03:54.120 assume that I'm going to make four percent return on 0:03:54.160 --> 0:03:58.640 my capital, I need twenty five times of my annual expenditure. 0:03:58.680 --> 0:03:58.920 There. 0:03:58.960 --> 0:04:02.400 So basically, say up a lot of money by being frugal, 0:04:02.560 --> 0:04:04.920 by working a lot, and then retire as early as 0:04:04.960 --> 0:04:07.360 you can and then live the rest of your life happy. 0:04:07.480 --> 0:04:11.760 So it sounds simple in practice, but in reality, less 0:04:11.760 --> 0:04:14.400 than five percent of people who in back on a 0:04:14.440 --> 0:04:16.440 fire strategy actually achieve it. 0:04:16.760 --> 0:04:18.760 Where did you get those numbers from James Gerard? 0:04:21.120 --> 0:04:21.560 The internet? 0:04:21.640 --> 0:04:21.719 Right? 0:04:21.760 --> 0:04:22.560 You can trust you today? 0:04:23.080 --> 0:04:24.720 As my teacher used to say, where did you get 0:04:24.720 --> 0:04:26.080 those numbers from Kirby. 0:04:28.080 --> 0:04:33.240 For various websites academic research papers into the fire movement? 0:04:34.440 --> 0:04:37.159 I wonder we'll come back to that. At the moment. 0:04:37.279 --> 0:04:39.760 It does sound low. 0:04:40.120 --> 0:04:44.440 If it was half successful, then what's wrong with that? 0:04:44.560 --> 0:04:48.240 If someone said I aspired to retire at fifty and 0:04:48.279 --> 0:04:51.760 I didn't do it till I was fifty seven, Well, 0:04:52.000 --> 0:04:54.600 you know that's not about achievement. Assuming you want to 0:04:54.640 --> 0:04:57.720 we'll working one thing. We have to challenge you some assumptions. 0:04:57.720 --> 0:05:02.000 We assume, folks, that the attraction of the fire movement 0:05:02.080 --> 0:05:04.719 is this notion that you can retire early and you 0:05:04.839 --> 0:05:07.800 want it. It would take that as a given, and 0:05:07.839 --> 0:05:11.520 then it's about how you actually construct this and what 0:05:11.560 --> 0:05:15.279 you must do, and I don't want to simplify it. Delayed 0:05:15.320 --> 0:05:19.000 gratification is a major part of it. Saving, real saving 0:05:19.080 --> 0:05:22.080 is a major part of it. I was just looking 0:05:22.120 --> 0:05:25.720 at these sort of three core principles of fire, the 0:05:25.760 --> 0:05:30.560 fire number, the fire lifestyle, and this idea of protecting 0:05:30.600 --> 0:05:33.040 your savings, and I'd like to just go through them. 0:05:33.120 --> 0:05:36.640 James with them in this segment. So they have this 0:05:36.760 --> 0:05:39.960 key thing where you must figure out how much you'd 0:05:40.040 --> 0:05:43.159 need as a retired person. And in a way, again 0:05:43.680 --> 0:05:45.599 I do not want to be cynical here, but in 0:05:45.640 --> 0:05:48.160 a way, you don't need anything, right that is, if 0:05:48.160 --> 0:05:50.440 you've got to retirement days, there's a government pension. 0:05:50.120 --> 0:05:50.719 That will pay you. 0:05:51.160 --> 0:05:54.000 And maybe it's about how long is a piece of string. 0:05:54.320 --> 0:05:56.200 But they say, what they say to people is if 0:05:56.240 --> 0:05:58.400 you want to do this, you have to assume you 0:05:58.440 --> 0:06:00.800 need it for twenty five years or more, and you. 0:06:00.800 --> 0:06:01.600 Needed about four. 0:06:02.000 --> 0:06:05.080 You need to take out four percent of your savings 0:06:05.120 --> 0:06:08.080 each year. To these are American numbers, so they are 0:06:08.120 --> 0:06:10.440 oblivious if you'd like to our social security system, which 0:06:10.480 --> 0:06:15.400 would give you a core amount, assuming that you qualify 0:06:15.480 --> 0:06:17.960 for it or partially qualify for it. But anyway, it 0:06:18.040 --> 0:06:20.239 runs on this basis that you stack up an amount 0:06:20.279 --> 0:06:22.359 of money and then you take out a certain amount 0:06:22.440 --> 0:06:24.000 of that each year. 0:06:24.040 --> 0:06:26.600 Their number is four percent. This is the famous fire. 0:06:26.440 --> 0:06:29.640 Number, right, So I'll just read out what they have here. 0:06:30.080 --> 0:06:33.080 If you had a one point seventy five million, if 0:06:33.080 --> 0:06:35.960 that was your fire number, right, which is the amount 0:06:36.000 --> 0:06:38.599 you haven't super basically in our world, you'd have to 0:06:38.600 --> 0:06:41.440 have it in the supersystem, but saved up for your retirement. 0:06:41.760 --> 0:06:43.440 If you have one point seventy five million was your 0:06:43.440 --> 0:06:48.040 fire number, using their four percent guideline, this would allow 0:06:48.120 --> 0:06:52.279 you to withdraw twenty eight annually. Okay, So that's what 0:06:52.320 --> 0:06:54.559 it would be when I say, we'll put the pension 0:06:54.600 --> 0:06:57.320 to one side, but you can probably no doubt you'd 0:06:57.360 --> 0:07:00.120 be able to supplement this with what your pench and 0:07:00.240 --> 0:07:02.839 access is. Part I want to make is that's principle 0:07:02.839 --> 0:07:04.840 in the system already, isn't it, James? If you were 0:07:04.880 --> 0:07:08.479 a self funded retiree. It just so happens that that 0:07:08.640 --> 0:07:10.280 is what they demand. Is it by lower that you 0:07:10.320 --> 0:07:12.400 take out? Isn't it four percent? So is that the 0:07:12.400 --> 0:07:18.200 fire number? The fire number being what number you save 0:07:18.800 --> 0:07:23.480 and then what number you must have from that to 0:07:23.520 --> 0:07:27.200 live per year? Is that basically the first principle there? 0:07:27.280 --> 0:07:27.920 Fire number? 0:07:28.040 --> 0:07:31.600 Yeah, that's basically it. The thinking is that if you're 0:07:31.640 --> 0:07:35.000 earning four percent on your capital, so if you've got 0:07:35.000 --> 0:07:38.680 it in a term deposit or an ETF portfolio, in 0:07:38.720 --> 0:07:41.800 the share market and bond and property markets, you're probably 0:07:41.800 --> 0:07:44.120 going to earn about four percent income, which means that 0:07:44.480 --> 0:07:46.560 once you've saved up that capital. So if we use 0:07:46.600 --> 0:07:49.400 around number like a million dollars, you're expected to get 0:07:49.400 --> 0:07:51.800 probably about forty thousand dollars per year. And if you 0:07:51.800 --> 0:07:54.520 can live off that forty thousand dollars per year, you're 0:07:54.520 --> 0:07:56.720 going to maintain a million dollars and you don't have 0:07:56.760 --> 0:07:59.600 to work anymore. But as you've alluded to that, there 0:07:59.640 --> 0:08:01.840 is the government age pension, but that comes in at 0:08:01.880 --> 0:08:04.360 age sixty seven. You can access your super but that's 0:08:04.400 --> 0:08:07.240 at age sixty. So for people who want to embark 0:08:07.280 --> 0:08:10.080 on a fire strategy and retire in their twenties, thirties 0:08:10.080 --> 0:08:13.200 and forties, they need to have personal money outside of 0:08:13.360 --> 0:08:16.680 Super so that they can sustain themselves up until the 0:08:16.680 --> 0:08:18.720 point where they can access their their super or the 0:08:18.720 --> 0:08:22.040 government age pension. So one variation of the fire strategy 0:08:22.080 --> 0:08:26.160 is called a lean fire, and that's where you minimize 0:08:26.200 --> 0:08:28.960 your outgoing, do your living expenses when you decide to 0:08:28.960 --> 0:08:32.440 stop working. So think about moving out into the bush, 0:08:32.480 --> 0:08:35.200 going off the grid, getting a few chickens, having some 0:08:35.280 --> 0:08:38.240 solar panels, and minimizing your costs so you know you 0:08:38.320 --> 0:08:41.360 spending ten fifteen thousand dollars a year, which means that 0:08:41.400 --> 0:08:43.439 the money that you need to save up isn't as 0:08:43.480 --> 0:08:46.520 much as if you're living in to Rack, Melbourne for example. 0:08:47.240 --> 0:08:50.760 Okay, assuming that majority of our audience are not on 0:08:52.559 --> 0:08:54.880 have their chickens in a hot in the woods somewhere, 0:08:55.400 --> 0:08:59.600 they're probably in town. But assume that right doesn't safe assumption, 0:09:00.240 --> 0:09:04.880 then a point that immediately hits me is our entire 0:09:05.080 --> 0:09:07.720 saving system is turns on. 0:09:07.880 --> 0:09:08.280 Super. 0:09:08.600 --> 0:09:12.320 Super is a tax protected vehicle and the catches you 0:09:12.400 --> 0:09:15.200 must keep the money in there till the day you retire. 0:09:15.280 --> 0:09:17.560 Sixty is the earliest you can get that tax protected 0:09:17.600 --> 0:09:22.040 money out and so ironically the super system works against 0:09:22.240 --> 0:09:25.120 the notion of fire, or certainly against the notion the 0:09:25.160 --> 0:09:28.960 fire concept of retiring really early forties or fifties. 0:09:29.040 --> 0:09:29.880 Is that fair to say? 0:09:30.679 --> 0:09:33.960 It is fair to say, yeah, yeah, you accumulate assets 0:09:33.960 --> 0:09:36.600 in your personal name, you're subject to capital gains tax. 0:09:36.640 --> 0:09:40.199 You generate that income from the dividends, the interest and 0:09:40.240 --> 0:09:44.120 distributions on the investments. Again, you're taxed on that as well. 0:09:44.200 --> 0:09:48.320 So it is harder to retire before the normal retirement 0:09:48.360 --> 0:09:51.280 age's just due to your money being in your personal 0:09:51.360 --> 0:09:53.840 name and being taxed at our marginal tax rates, which 0:09:53.840 --> 0:09:55.120 can be up to forty seven percent. 0:09:55.559 --> 0:09:59.119 Yes, exactly, So that's what I'm saying that ironically, folks, 0:10:00.040 --> 0:10:03.080 system actually wants you to keep working longer than the 0:10:03.080 --> 0:10:07.000 fire concept suggests. But okay, let's take the second thing now, 0:10:07.000 --> 0:10:09.800 on fire, the three big principles, right, one was the 0:10:09.960 --> 0:10:13.120 calculator fire number, another one was commit to the lifestyle, 0:10:13.240 --> 0:10:15.559 the fire lifestyle, and the third one was to grow 0:10:15.600 --> 0:10:17.880 and protect your savings. Now this is where I do 0:10:17.920 --> 0:10:21.200 get cynical. Okay, So there's this idea spending little as 0:10:21.200 --> 0:10:22.880 little as you can, saving as much as you can 0:10:22.960 --> 0:10:25.560 find fine by me. But then there's like they have 0:10:25.600 --> 0:10:29.800 these sort of like sub notions. They have fire movement 0:10:29.880 --> 0:10:33.800 approaches that two ways coast and barrista right coast, save 0:10:33.880 --> 0:10:38.600 and invest much of their money decades before retirement, and 0:10:38.600 --> 0:10:40.480 then when they hit their fire number, they can coast 0:10:40.480 --> 0:10:43.800 through retirement because they've fired enough, because they've saved enough. 0:10:44.400 --> 0:10:47.000 The second type is the barista. This refers to having 0:10:47.040 --> 0:10:50.280 a low stress, part time job with flexible hours, and 0:10:50.360 --> 0:10:53.840 the barista fire advocate typically set a lower retirement front 0:10:53.880 --> 0:10:56.880 target for themselves and choose to work part time jobs 0:10:56.920 --> 0:11:00.480 to supplement their income once they hit retirement. Come on, 0:11:01.360 --> 0:11:04.360 part time barrista, I think you know it's a tough job. 0:11:04.400 --> 0:11:06.920 That's a hard job, standing there, making coffees for people 0:11:07.440 --> 0:11:12.000 and being socially gregarious. But what I'm saying is it's 0:11:12.040 --> 0:11:14.160 harder than that line suggests to me. 0:11:14.440 --> 0:11:15.080 That's not on. 0:11:15.160 --> 0:11:16.840 I don't think you could be a part time barrister 0:11:17.640 --> 0:11:22.360 and finance anything close to a comfortable retirement. I'm under 0:11:22.400 --> 0:11:24.600 cutting it here, but I have to feel a responsibility 0:11:24.640 --> 0:11:26.600 to tell people it's not that easy. What do you 0:11:26.600 --> 0:11:28.520 think about that? As a qualified advisor? 0:11:29.320 --> 0:11:32.640 I agree yeah, so that the barista fire is like, 0:11:32.760 --> 0:11:35.560 save really hard and then stop working full time and 0:11:35.600 --> 0:11:38.360 then work part time and be a barrista or something 0:11:38.480 --> 0:11:40.960 like that to cover part of your cost. So you 0:11:41.040 --> 0:11:43.839 partly live off your savings, partly still work part time. 0:11:43.920 --> 0:11:46.800 But as you say, that might not be easier, may 0:11:46.840 --> 0:11:49.320 be stressful, and you may have been better just to 0:11:49.640 --> 0:11:52.960 stay working part time and pace yourself out a little 0:11:53.000 --> 0:11:55.680 bit more. Now, with regards to the fire lifestyle in general, 0:11:56.120 --> 0:11:58.920 I've gone through the depths of the internet looking at 0:11:58.920 --> 0:12:02.080 different forums on fire so that your listeners don't have 0:12:02.160 --> 0:12:05.080 to and I've actually found a few different examples of 0:12:05.120 --> 0:12:08.400 what people have actually done extreme fire measures with regards 0:12:08.440 --> 0:12:10.880 to their lifestyle. So if you're like, I'll read out 0:12:10.880 --> 0:12:13.679 some of them that I had noted. Okay, So some 0:12:13.720 --> 0:12:16.760 people they live with their parents into their forties because 0:12:16.800 --> 0:12:18.280 they don't want to pay rent, they don't want to 0:12:18.320 --> 0:12:20.800 have a mortgage. Some of them were living in vans, 0:12:20.840 --> 0:12:24.600 some bought tiny homes. I saw another person who posted 0:12:24.640 --> 0:12:28.160 that they don't have friends as part of their fire strategy, 0:12:28.400 --> 0:12:31.040 because friends are expensive. If you don't have friends, you 0:12:31.040 --> 0:12:33.160 don't have to buy anyone birthday gifts no wedding gifts, 0:12:33.240 --> 0:12:34.840 you don't have to go out for drinks. 0:12:34.840 --> 0:12:39.079 Makes sense, right, exire are extreme examples, get logitic, can't 0:12:39.160 --> 0:12:40.160 knock them. Yeah. 0:12:40.440 --> 0:12:42.800 Another one was this a little bit more contentious. Don't 0:12:42.800 --> 0:12:45.240 have children because you know, we know how expensive children. 0:12:45.400 --> 0:12:48.839 And then there's more practical ones. Don't have a car, walk, 0:12:49.000 --> 0:12:51.800 use a bike, public transport. And then there was a 0:12:51.840 --> 0:12:55.079 whole section on food, a whole sub fire category on food. 0:12:55.160 --> 0:12:58.319 So people just living off rice and eggs and pasta, 0:12:58.360 --> 0:13:00.760 the low cost staples and all the different recipes they 0:13:00.760 --> 0:13:01.360 could make on that. 0:13:01.520 --> 0:13:03.720 Is it all about saving gyms? Is it all about 0:13:03.840 --> 0:13:07.040 saving Is it no emphasis on building your income? 0:13:07.720 --> 0:13:10.840 Well, there's two parts to it. There's the what you 0:13:10.880 --> 0:13:13.520 can control, and you can really control what you spend. 0:13:13.760 --> 0:13:15.800 So a lot of people spend a lot of effort 0:13:15.840 --> 0:13:18.400 on the fire movement on reducing their expenditure so that 0:13:18.440 --> 0:13:22.319 they can save sixty seventy, sometimes eighty percent of their income. 0:13:22.640 --> 0:13:25.880 And then the other part is generating your income. Which 0:13:26.280 --> 0:13:29.679 it was interesting that it's very much an economic decision, 0:13:29.800 --> 0:13:32.360 a cost benefit analysis when it comes to almost everything 0:13:32.360 --> 0:13:35.280 with fire. So, for example, when it comes to your 0:13:35.360 --> 0:13:37.920 job and your income, the decision around do you go 0:13:38.000 --> 0:13:40.920 to university if you're pursuing the fire strategy really comes 0:13:40.960 --> 0:13:42.959 down to how many years is it going to take 0:13:43.000 --> 0:13:45.960 you to get your university degree. How many years are 0:13:45.960 --> 0:13:48.040 you not earning income that you could have been earning 0:13:48.040 --> 0:13:50.160 while you're study in what's the cost of that degree. 0:13:50.200 --> 0:13:52.600 But on the other side of the equation, how much 0:13:52.640 --> 0:13:54.600 extra income per hour are you going to make if 0:13:54.600 --> 0:13:58.240 you do have that degree qualification. So everything is very 0:13:58.280 --> 0:14:00.040 thought out with that the fire strategy. And then the 0:14:00.080 --> 0:14:02.600 last part which will come to is that the investing part. 0:14:02.679 --> 0:14:04.720 So there is some focus on that as well. But 0:14:04.760 --> 0:14:07.360 I did see a lot of emphasis around ways to 0:14:07.400 --> 0:14:09.600 cut down on spending so you can save more. 0:14:09.880 --> 0:14:14.080 Okay, I suppose that is reasonable, and so there are 0:14:14.120 --> 0:14:16.520 certain things to be greatly admired in this far strategy. 0:14:17.360 --> 0:14:21.880 Not everyone can increase their income, particularly people on salary arrangements, 0:14:22.240 --> 0:14:26.120 but you can always save that as a lever we 0:14:26.120 --> 0:14:27.880 can all pull. We can all save more. Every single 0:14:27.880 --> 0:14:29.840 person listening to this show, including me and you, James, 0:14:29.840 --> 0:14:33.000 we could save more. I could not have lunch downstairs today, 0:14:33.360 --> 0:14:35.040 or I can have a smaller one, and I would say, 0:14:35.160 --> 0:14:37.400 so I have that we all have that power. 0:14:38.160 --> 0:14:40.520 We'll be back in a moment. It is very interesting. 0:14:40.560 --> 0:14:44.080 It really is the fire concept and we're going to 0:14:44.080 --> 0:14:46.240 take a look at the most important part, I would 0:14:46.240 --> 0:14:47.960 think from our listeners point of view, which is that 0:14:48.120 --> 0:14:52.000 this aspect of growing your income and protecting protecting your income, 0:14:52.040 --> 0:14:55.160 which they put up very high as a priority. Back 0:14:55.160 --> 0:15:07.520 in the moment, Hello and welcome back to The Australian's 0:15:07.560 --> 0:15:11.080 Money Puzzle podcast. I'm James Kirby Well at The Australian 0:15:11.080 --> 0:15:13.280 and I'm talking to regular guests of the show and 0:15:13.360 --> 0:15:17.360 contributor to the Worst Section, James Gerard, who will also 0:15:17.400 --> 0:15:21.720 be hosting some shows Folks with Stuart Weems in September. 0:15:21.920 --> 0:15:25.440 When I am taking a holiday, Are you allowed to 0:15:25.440 --> 0:15:27.440 take a holiday? I bet You're not allowed to take holidays 0:15:27.440 --> 0:15:29.840 at all. On the fire and movements just plow away 0:15:30.560 --> 0:15:32.440 week after week, half starved. 0:15:33.200 --> 0:15:33.440 See. 0:15:33.680 --> 0:15:35.680 I have to stop myself. I have to stop myself 0:15:35.760 --> 0:15:41.600 under cutting this. It's not fair, okay, and it depends. 0:15:41.920 --> 0:15:45.800 But as I say, I completely like, I completely admire 0:15:46.840 --> 0:15:53.160 concepts within this. All I'm actually skeptical about, James, is 0:15:53.680 --> 0:15:58.520 that they mislead people into thinking that you could retire, 0:15:59.120 --> 0:16:01.240 that it's easier, that it might that you might be 0:16:01.280 --> 0:16:05.080 make a terrible mistake, and assume that it is easier 0:16:05.240 --> 0:16:08.560 to do so. I have often been asked, you know, well, 0:16:08.560 --> 0:16:10.560 why are you still working? You don't have to keep working, 0:16:10.560 --> 0:16:14.240 do you? And it's true, I don't have to. Maybe 0:16:14.240 --> 0:16:16.000 you don't have to change. Certainly I don't have to. 0:16:16.080 --> 0:16:20.080 My my family are older than yours. So but it's 0:16:20.080 --> 0:16:23.440 a question of the lifestyle I want. I could stop tomorrow, 0:16:24.400 --> 0:16:26.840 but I couldn't live the way I live now tomorrow 0:16:27.200 --> 0:16:29.280 if I was to be realistic about it. And you 0:16:29.320 --> 0:16:31.920 can apply that to anyone's life. I think in terms 0:16:31.960 --> 0:16:36.200 of what's the reality of this, retire early? Assuming you 0:16:36.240 --> 0:16:37.920 want to write I don't even want to, but I'm 0:16:37.920 --> 0:16:41.360 assuming that people want to. Okay, now here's getting down 0:16:41.400 --> 0:16:43.960 the brass tax Here about what I think is a 0:16:44.040 --> 0:16:46.440 very important part of it is they talk about how 0:16:46.440 --> 0:16:50.760 to build income. They begin to passive income. Again, A 0:16:50.800 --> 0:16:53.440 part of me is going to say passive income. Yeah, 0:16:53.520 --> 0:16:55.960 but it's never going to have the returns of active income. 0:16:56.480 --> 0:16:59.680 It just isn't. It certainly doesn't offer the same possibilities, 0:17:00.240 --> 0:17:02.800 it offers the same return as the market, but it 0:17:02.840 --> 0:17:05.439 doesn't offer to beat the market, which you can do 0:17:05.520 --> 0:17:07.520 if you're active. We'll put that to one side for 0:17:07.560 --> 0:17:10.720 a moment. So James, before we talk about how they 0:17:10.840 --> 0:17:13.680 talk about making money, they've got a really big emphasis 0:17:13.760 --> 0:17:19.840 on protecting yourself, enforcing circumstances, building up three to six 0:17:19.920 --> 0:17:23.200 months worth of savings. Gee, honestly, that's a very slow 0:17:23.280 --> 0:17:26.760 way to start building money, rainy day funds and ensuring 0:17:26.800 --> 0:17:28.840 everything you can think of. What do you think of 0:17:28.880 --> 0:17:30.920 that central concept? 0:17:33.160 --> 0:17:36.800 Yeah, it makes sense. It's prudent. It's good to have 0:17:36.840 --> 0:17:41.920 that cash buffer there for unforeseen circumstances. It is very sensible. 0:17:42.000 --> 0:17:46.000 For a large part what the fire philosophy is, it's 0:17:46.080 --> 0:17:49.240 really just been more frugal in these earlier years and 0:17:49.280 --> 0:17:52.119 then enjoying yourself later. So even though I said earlier 0:17:52.119 --> 0:17:55.120 that only five percent of people is successful in achieving that, 0:17:55.960 --> 0:17:59.400 the majority of people do get closer to their financial 0:17:59.400 --> 0:18:02.679 goals because they have saved more, they have worked harder, 0:18:02.720 --> 0:18:07.200 they have invested better, they have implemented good solid financial 0:18:07.240 --> 0:18:11.240 Fundacians like having a cash reserve. So overall it's a 0:18:11.240 --> 0:18:14.320 good thing, But it's really that degree of how far 0:18:14.440 --> 0:18:16.760 do you push it do you not have friends, do 0:18:16.840 --> 0:18:19.200 you know, dive into dumpsters and get out expired food 0:18:19.240 --> 0:18:21.080 so they don't have to buy a loaf of bread 0:18:21.680 --> 0:18:23.080 at the local shops. Yeah. 0:18:23.359 --> 0:18:26.560 The point is which frugal becomes being mean or miserly 0:18:26.720 --> 0:18:29.880 from one of a better word, and miserly has connotations, 0:18:30.160 --> 0:18:33.840 all sorts of connotations, and rarely linked with happiness, which 0:18:33.880 --> 0:18:38.040 is something you can't really measure. Maybe you do it 0:18:38.119 --> 0:18:39.879 and you retire at fifty and you look back and 0:18:39.920 --> 0:18:42.720 you say, gosh, you know, I can't really go to 0:18:42.800 --> 0:18:45.920 nightclubs now till four in the morning. And I could 0:18:45.960 --> 0:18:47.960 have in those days, or you know, I could have 0:18:48.119 --> 0:18:50.320 sailed around the world, or I could have whatever, played 0:18:50.359 --> 0:18:52.320 soccer at a high level or whatever, but I didn't 0:18:52.320 --> 0:18:54.080 because I didn't want to buy expensive boots. 0:18:54.160 --> 0:18:54.520 Whatever. 0:18:54.640 --> 0:18:57.560 I'm just again playing Devil's advocate here. Okay, So they're 0:18:57.600 --> 0:19:00.199 big into insurance, and I am not that I'm not 0:19:00.359 --> 0:19:02.639 big into insurance. I think you should ensure yourself. 0:19:03.119 --> 0:19:04.720 WHOA, I would be. 0:19:04.720 --> 0:19:07.720 Extremely careful in spending a penny more than you actually 0:19:07.720 --> 0:19:09.400 need to from an actual point. 0:19:09.160 --> 0:19:12.800 Of view passive income. They think that this is the 0:19:12.840 --> 0:19:13.600 big secret. 0:19:13.800 --> 0:19:15.840 I don't think it's a secret. But maybe here's a 0:19:15.840 --> 0:19:18.400 secret to many people. They still don't realize what ETFs 0:19:18.440 --> 0:19:22.399 are and index funds. What do you think of this 0:19:22.960 --> 0:19:27.679 building passive income concept for the average person and the 0:19:27.680 --> 0:19:30.280 average situation who doesn't have much money, and it only 0:19:30.320 --> 0:19:33.520 has a very limited amount to apply to wealth building. 0:19:34.760 --> 0:19:37.960 So the building the passive income under the fire strategy 0:19:38.240 --> 0:19:41.320 isn't really any different to how most people build their wealth. 0:19:41.440 --> 0:19:44.520 They have a bit of cash at buffer, they start 0:19:44.560 --> 0:19:48.399 to have a surplus every month that they identify, they 0:19:48.440 --> 0:19:51.160 put that aside, and then they invest that into something, 0:19:51.280 --> 0:19:53.800 whether that's to save a deposit and then purchase an 0:19:53.840 --> 0:19:56.800 investment property or a home and pay down the mortgage, 0:19:56.840 --> 0:20:00.760 or whether that's into an ETF portfolio. The goal is 0:20:00.800 --> 0:20:03.800 to grow the asset. So what I observed is that 0:20:03.840 --> 0:20:07.080 the fire strategies to have more growth based assets in 0:20:07.160 --> 0:20:10.480 those earlier years to try and get dearly double digit returns. 0:20:10.960 --> 0:20:13.800 Okay, interesting, Okay, and then they have the I think 0:20:13.840 --> 0:20:16.080 the third prong of this is to basically work more 0:20:16.480 --> 0:20:19.760 side gigs, side hustles, again, which I would completely agree 0:20:19.760 --> 0:20:21.959 with and I think we probably all of us did 0:20:22.000 --> 0:20:24.400 at various times in our lives when we wanted, when 0:20:24.440 --> 0:20:27.000 you're in that early accumulation phase and you just had 0:20:27.040 --> 0:20:29.960 to get going, that would seem to make a perfect 0:20:30.040 --> 0:20:34.320 sense towards financial independence. So having had a look at 0:20:34.320 --> 0:20:36.720 it all, James and I've had a good look at 0:20:36.720 --> 0:20:39.720 it all, but haven't met anyone who's a disciple as such. 0:20:40.400 --> 0:20:42.520 Maybe we have some listenings to the show. I'm really 0:20:42.600 --> 0:20:44.919 keen to hear from you, folks if you are have 0:20:45.080 --> 0:20:47.639