Speaker 1: Welcome to How the Money. I'm Joel and I and
Speaker 1: Matt and today we're discussing the simple steps to achieve fire. Yeah, Joel.
Speaker 1: Even though achieving fire, which by the way, that means
Speaker 1: financial independence retire early. We talked about this last week
Speaker 1: and this is a little two parter series that we're
Speaker 1: doing on financial independence retiring early. Though the steps are simple,
Speaker 1: that doesn't necessarily mean that they're easy, right. This is
Speaker 1: a big goal to try to get to the point
Speaker 1: to where you don't have to work, where you could
Speaker 1: retire early if you wanted to to where you are
Speaker 1: financially independent. That's what we're gonna talk about this episode.
Speaker 1: We're gonna talk through the specific steps that we all
Speaker 1: need to take regardless of what our financial independence retire
Speaker 1: early journeys look like. We're gonna get really practical with
Speaker 1: this episode, Buddy, Yeah, Man, Fire obviously an incredible goal.
Speaker 1: You know, we talked about the pros and cons of
Speaker 1: it last week, but yeah, there are some specific things
Speaker 1: that you need to do in order to achieve that goal.
Speaker 1: And it's not a goal necessarily for everybody. But I
Speaker 1: think one of the key tenants of fire that we're
Speaker 1: gonna talk about two is that you really do have
Speaker 1: to be intentional about every single dollar. And Matt, before
Speaker 1: we get to talking about fire, I wanted to tell
Speaker 1: you some way I was trying to be really intentional
Speaker 1: about my money. Uh just here. It just this past week. So, Man,
Speaker 1: I drove our family downtown recently for a protest against
Speaker 1: racial injustice, and I'm trying to figure out where we
Speaker 1: were going to park. And normally I would like to
Speaker 1: ride my bike downtown with the kids, but with all
Speaker 1: of us going with like a nap time for the baby,
Speaker 1: we just had to drive for and it made sense.
Speaker 1: And I was trying to figure out where the cheapest
Speaker 1: place to park was near the place we were going.
Speaker 1: And so, like a super money nerd that I am,
Speaker 1: I was googling for websites that would help me find
Speaker 1: the cheapest parking. I found this website called parko Pedia
Speaker 1: and legit, yeah it's like I think, yeah, it's like Wikipedia,
Speaker 1: but for parking or something like that. And I don't know,
Speaker 1: but no, they did a really good job kind of
Speaker 1: kind of laying out the map and telling me how
Speaker 1: much it costs to park at different places. And so
Speaker 1: I ended up finding a place it looked like it
Speaker 1: was nine dollars if I parked before ten am early
Speaker 1: bird special. I was like, cool, I'm gonna hit that.
Speaker 1: I want to be there, and you know, a lot
Speaker 1: of other places were and I think park O PD
Speaker 1: did a good job. But it turns out I didn't
Speaker 1: do a good job. I didn't really fine print. So
Speaker 1: the early bird special only applies if you leave after
Speaker 1: two pm. We weren't staying that long, so I had
Speaker 1: to pay a full twenty bucks man, And that's the
Speaker 1: kind of thing that a guy like me absolutely hates.
Speaker 1: Like it was, it was really tough leaving that parking
Speaker 1: lot and being like, man, I just gotta stuck with
Speaker 1: the twenty dollar bill for parking when I tried to
Speaker 1: plan ahead. Frugal fail. Man. So did you use the
Speaker 1: website or did you download the app onto your phone?
Speaker 1: I used the website website, so I've never heard of
Speaker 1: the site, but I saw that they do have an app,
Speaker 1: and I was gonna say that if you had the apps,
Speaker 1: and you should leave a review, because you can leave
Speaker 1: reviews for individual decks or parking lots. I was looking.
Speaker 1: It didn't seem like there are a ton of reviews
Speaker 1: or you know, feedback within Atlanta. So I don't know
Speaker 1: if that means it's just maybe a newer service for Atlanta.
Speaker 1: But this is the kind of thing though that I
Speaker 1: love seeing anything that's crowdsourced, where folks are participating in it.
Speaker 1: And so hopefully next time you'll have the app, you
Speaker 1: can leave your feedback and that can let the next
Speaker 1: guy know that they got to stay there until, you know,
Speaker 1: way after nap time for the baby. Yeah, it felt
Speaker 1: like a little bait and switch. Maybe I don't know. Also,
Speaker 1: probably I just didn't read the fine print, So I'm
Speaker 1: gonna blame that one on myself. But for other people
Speaker 1: who do park in areas that are kind of expensive,
Speaker 1: maybe that app or that website can be helpful to
Speaker 1: people to find a parking garage that is going to
Speaker 1: be cheaper. And yeah, read the reviews because people will
Speaker 1: chime in and and tell you what they found wrong
Speaker 1: with that parking deck. But for those of us who
Speaker 1: are money nerds into saving every dollar, I sight like
Speaker 1: that can be helpful for sure. I mean, that could
Speaker 1: be a great resource if you're looking for free or
Speaker 1: cheap parking. Uh, let's introduce our beer for this episode.
Speaker 1: We are gonna drink uh Speedway stout and this is
Speaker 1: an Imperial stout with coffee brewed by Ale Smith. These
Speaker 1: guys are out of San Diego. We actually mentioned them
Speaker 1: on a recent episode. It's one of the many wonderful
Speaker 1: brewers they're out of that great ay there in California.
Speaker 1: Looking forward to sharing listen with you, Man, me too. Man.
Speaker 1: All right, let's get onto to the subject at hand.
Speaker 1: Today we're discussing the simple steps to achieve fire. And
Speaker 1: last week on the show, Matt, You and I we
Speaker 1: shared how we feel about the Fire movement. We talked
Speaker 1: through the pros and cons, the things that we really
Speaker 1: like about the movement and the things that we kind
Speaker 1: of feel are lacking, and we really came down on
Speaker 1: the side of the fact that we think that the
Speaker 1: movement has been more helpful than harmful by by a
Speaker 1: long shot. But at the same time, we're not all
Speaker 1: in on it, and we discussed kind of the specifics
Speaker 1: on why. So if you didn't get a chance to
Speaker 1: listen to that one, we would say give it a shot,
Speaker 1: go check that one out. This episode, we're going to
Speaker 1: discuss exactly how you can achieve fire. If that's something
Speaker 1: that you are interested in. By the way, to Matt,
Speaker 1: I wanted to to make a note that Fire is
Speaker 1: not only for hyper young people. It's not only for
Speaker 1: millennials and younger. People in their forties and fifties are
Speaker 1: finding out about this movement and it's changing how they
Speaker 1: handle their finances, and it's causing them to rethink the
Speaker 1: traditional notions of retiring at six later. So this show
Speaker 1: today is deaf only for all of our listeners. Yeah,
Speaker 1: we don't only have twenty five year old listeners. Sometimes
Speaker 1: I think maybe we have forty five or fifty five
Speaker 1: year old listeners to uh. You know, it's also important
Speaker 1: to note that, depending on your specific situation, Fire could
Speaker 1: of course be much harder to achieve. You know, if
Speaker 1: you're miired in the student loan debts, or you're working
Speaker 1: a low paying job for a nonprofit because maybe you
Speaker 1: love the work, Fire will most definitely be a more
Speaker 1: difficult accomplishment. If this is you, then there's a good
Speaker 1: chance that the retire early part of Fire, that that
Speaker 1: won't even be a goal of years at all, you know,
Speaker 1: if you do love the work that you do. However,
Speaker 1: the financial independence portion of Fire, you know, I think
Speaker 1: that's something that we should all be striving towards. And also,
Speaker 1: the biggest question we're gonna answer in this episode is
Speaker 1: how to actually achieve fire. And granted that journey is
Speaker 1: gonna look different for for everyone, but there are certain
Speaker 1: principles that are the same regardless of what your journey
Speaker 1: looks like. Yeah, and we wanted to discuss specifically how
Speaker 1: to achieve fire for two reasons. Two major reasons, Matt.
Speaker 1: One I think is is seeing bigger potend possibilities. It
Speaker 1: can be motivating and eye opening. I know that in
Speaker 1: my financial journey before I heard about fire, I had
Speaker 1: some basic assumptions about personal finance, and then hearing the
Speaker 1: depths of what other people were able to accomplish was
Speaker 1: inspirational and motivational to me. It kind of opened up
Speaker 1: a world of possibilities in personal finance that just didn't
Speaker 1: even know we're there. And because of that, it helped
Speaker 1: me number two reframe my own goals like and and
Speaker 1: that can be the same for many of our listeners
Speaker 1: as they kind of hear about this subject and here
Speaker 1: the details on how to achieve fire. Many of our
Speaker 1: listeners are ambitious when it comes to their money, dreams
Speaker 1: and so laying out the framework of what it will
Speaker 1: take to attain fire, it can be so helpful, right,
Speaker 1: And even if fire isn't on their radar, I think
Speaker 1: anybody who just wants to pursue financial independence or just
Speaker 1: like curious about how they can save more and do
Speaker 1: better with their money, they're going to find this episode
Speaker 1: helpful too. Yeah, man, And I like what you said
Speaker 1: there about just the possibilities that are just out there
Speaker 1: for us. When we are aware of fire, and when
Speaker 1: we know that it's something that we can pursue, it
Speaker 1: opens up our mind, you know, it opens our eyes
Speaker 1: to the different possibilities and just all the different options
Speaker 1: out there. We don't have to follow the script of,
Speaker 1: you know, retiring at age sixty five, Like there's a
Speaker 1: chance you could retire at forty five or maybe even
Speaker 1: thirty five, you know, if you really get after it. Well,
Speaker 1: I'm already past that point, so you definitely can't go
Speaker 1: back in time. But fire does not offer that possibility
Speaker 1: for others out there. So let's go ahead and simplify
Speaker 1: achieving fire down to the essential roots. Basically, you just
Speaker 1: need to massively increase your savings rate, and then you
Speaker 1: need to invest the difference. That sounds pretty simple, right,
Speaker 1: but the nuts and bolts can actually be pretty revealing.
Speaker 1: So we're gonna discuss the actual specifics of how to
Speaker 1: achieve fire, and we're gonna get to that right after
Speaker 1: the break. All right, we're back from the break, and Matt,
Speaker 1: we're gonna get to the math and we're gonna get
Speaker 1: to the investment accounts and all that stuff in just
Speaker 1: a little bit. But the first thing you need to
Speaker 1: do in the first step I think you need to
Speaker 1: take when you decide that pursuing fire is for you,
Speaker 1: is that you have to change your current relationship with money.
Speaker 1: And there are a few things that we have to
Speaker 1: discuss on this front before we can kind of move
Speaker 1: on to those other things. Last week, when we talked
Speaker 1: about the impact that the larger goal of fire can
Speaker 1: have on your mindset, it can be powerful. And then, well,
Speaker 1: if you really want to reach fire in a reasonable
Speaker 1: time frame, you're going to need to have a real
Speaker 1: change and how you relate to money. Right, You'll need
Speaker 1: to begin to enjoy the gamification aspects of personal finance.
Speaker 1: We've talked about that before, Matt, And then you'll want
Speaker 1: to let that overarching goal influence the money choices that
Speaker 1: you make every single day. Bringing your lunch to work
Speaker 1: every day and biking through the rain can be kind
Speaker 1: of actually instead of a bumer, it can be part
Speaker 1: of the excitement with your goal in hand, giving you
Speaker 1: the fuel to make those choices that are going to
Speaker 1: save you lots of extra money in order to help
Speaker 1: you reach that goal more quickly. Yeah, that intentional hardship
Speaker 1: can actually sometimes boost our happiness, right, And part of
Speaker 1: this is just rethinking happiness and what happiness is for us.
Speaker 1: We all know deep down that the most satisfying things
Speaker 1: in life are oftentimes free, and that also are Spending
Speaker 1: can dig us into a hole that creates stress and
Speaker 1: just more anxiety. So part of what fire, you know,
Speaker 1: gets really right is actually prioritizing what brings us meaning
Speaker 1: and then just ditching the rest. You know, This is
Speaker 1: how achieving fire can look different for everyone. It depends
Speaker 1: on what it is that you're prioritizing. Achieving fire doesn't
Speaker 1: necessarily have to be this cookie cutter thing that's gonna
Speaker 1: look the exact same from one person to the next.
Speaker 1: We control our futures, We control what we spend our
Speaker 1: money on. And additionally, on the note of happiness, I
Speaker 1: think it's worth pointing out how I think we've all
Speaker 1: seen in our lives when consumer spending, when you know,
Speaker 1: spending money that we didn't need to spend, how oftentimes
Speaker 1: that leads to us being less happy. And so that's
Speaker 1: even more reason why it's important for us to rethink
Speaker 1: what it is that moves the needle for us that
Speaker 1: actually makes us happy, because it'll be easier to identify
Speaker 1: the fact that earning lots of money and having tons
Speaker 1: of money isn't necessarily the end goal. Yeah, that reminds
Speaker 1: me of an episode we did quite a while back.
Speaker 1: We talked about buying happiness and can we do it?
Speaker 1: And we talked about the hedonic treadmill in that podcast episode,
Speaker 1: and we talked about how quickly we get used to
Speaker 1: the new normal once we've kind of upped our spending,
Speaker 1: and that spending increase might produce some sort of incredibly
Speaker 1: short lived burst of happiness, but in the long run,
Speaker 1: we then have to maintain that level of happiness and
Speaker 1: continue to spend. And so we're better off from a
Speaker 1: happiness perspective reining in our spending and saving more of
Speaker 1: what we make feeling less anxiety overall, and just practicing
Speaker 1: gratitude more frequently for for the things that we do have. Right,
Speaker 1: and as folks start to consider whether or not they
Speaker 1: think fire is something that they could live with, right,
Speaker 1: whether they think that that's something that would fit well
Speaker 1: with their lifestyle. I mean, that's exactly what we would
Speaker 1: encourage folks to do, is to think through the type
Speaker 1: of lifestyle that they want to have, because there are,
Speaker 1: you know, there can be a couple of different types
Speaker 1: of fire that you can achieve. You know, sacrifices will
Speaker 1: of course be required in order to go hard after fire,
Speaker 1: but how much sacrifice and the level of journey difficulty well,
Speaker 1: in large part be determined by the specific route that
Speaker 1: you opt for. In recent years is more people have
Speaker 1: found out about fire and joined the community. Terminology has
Speaker 1: developed to better reflect the choices that people are making,
Speaker 1: and that's where the different types of fire come in. Yeah,
Speaker 1: I think those are helpful because they've kind of distinguished
Speaker 1: uh different ways of approaching fire in your life. And
Speaker 1: the big two matt that that fire people talk about
Speaker 1: the most are lean fire and fat fire. So let's
Speaker 1: kind of talk about that too, because I think knowing
Speaker 1: these options out there too can help you in your
Speaker 1: approach to fire because some people want an incredibly simple lifestyle.
Speaker 1: They might, let's say, want to live in an RV
Speaker 1: um or build a tiny house on on a relatives land.
Speaker 1: And that kind of person might be somebody who would
Speaker 1: be a perfect fit for lean fire. This is a
Speaker 1: group of people in the movement that feel comfortable saving
Speaker 1: up twenty five times or expenses in investments and calling
Speaker 1: it done or maybe even less sometimes, and this group
Speaker 1: often receives the most criticism to because as most financial
Speaker 1: experts don't think they're saving enough to cover a long
Speaker 1: term retirement, lean fire often means only biking, no car
Speaker 1: at all. It also could mean moving to an extremely
Speaker 1: low cost of living area to reduce costs even more
Speaker 1: like living in an RV and this of course will
Speaker 1: allow you to reach that fire goal sooner because you
Speaker 1: have fewer expenses that you need to cover in those
Speaker 1: retirement years, in the years that you decide not to work.
Speaker 1: But no, that lean fire means a long term lifestyle
Speaker 1: of extreme simplicity. And I know for some people that
Speaker 1: sounds perfect and for other people we feel like we
Speaker 1: need a few more creature comforts and that lean fire
Speaker 1: lifestyle just isn't for us. Yeah, And on the other
Speaker 1: end of the spectrum is fat fire And I can
Speaker 1: identify maybe a little more with the fat firefolks, uh,
Speaker 1: for multiple reasons, namely because there's certain luxuries I'm gonna
Speaker 1: want to have in my life, like beer. That's true.
Speaker 1: You know, this approach is going to be a little
Speaker 1: more conservative when it comes to their investments and what
Speaker 1: you expect to receive and returns. And you know, while
Speaker 1: it major ly does prioritize frugality, also doesn't advise cutting
Speaker 1: back to the bare bones during retirement. You know, there's
Speaker 1: a realization that cutting back too harshly can lead to
Speaker 1: burnout and so where retirement may not even be all
Speaker 1: that fun, right, And so you've kind of worked really
Speaker 1: hard to save up, you know, just enough to to
Speaker 1: get by to consider that twenty five times your annual expenses,
Speaker 1: but in reality you're having to cut back maybe way
Speaker 1: more than you realize, or maybe there are certain expenses
Speaker 1: that you didn't take into account. And it's like, man,
Speaker 1: this retirement lifestyle isn't really all that is cracked up
Speaker 1: to be. Yes, So I would say you and I
Speaker 1: both probably lean a little more towards the fat fire camp,
Speaker 1: although a lot of those people want to buy like
Speaker 1: a Tesla and travel first class too, And I'm not
Speaker 1: really I don't really care too much about those things,
Speaker 1: or one of those things. You still want to tesla,
Speaker 1: I'm sure someday, someday, but but that's a long way off, man,
Speaker 1: I just can't see that happening anytime soon. Maybe in
Speaker 1: ten years I'll get an extremely used Tesla. We'll see.
Speaker 1: But now, Matt, as we're following the simple steps to
Speaker 1: achieve fire. We've we've changed our relationship with money, and
Speaker 1: we've kind of determined what fire approach is going to
Speaker 1: work best for kind of our long term approach to money.
Speaker 1: Then let's get too kind of a few specifics on
Speaker 1: how you proceed from there. One is that you have
Speaker 1: to pay off debt if you want to achieve fire,
Speaker 1: if you want to be able to retire. It is
Speaker 1: about saving and investing, but it's also about making sure
Speaker 1: that any sort of debts that you have, especially high
Speaker 1: interest rate debts, are taken care of. And so if
Speaker 1: you have gotten yourself into a place where you have
Speaker 1: more debt in your life, you've got student loan debt
Speaker 1: or credit cards hanging out, you're gonna want to prioritize
Speaker 1: those at the same time you're you're prioritizing investing and
Speaker 1: saving more because if you're going to try to retire early,
Speaker 1: the only debt you should typically even consider having in
Speaker 1: your life is debt on a home. Yeah, it's hard
Speaker 1: to save up your money and have interest working for
Speaker 1: you when you have interest working against you. When it
Speaker 1: comes to the debts that you still have. Another sort
Speaker 1: of you know, key principle joal when it comes to
Speaker 1: achieving fire is that you need to find ways to
Speaker 1: pair back your budget. Cutting your spending is so incredibly powerful.
Speaker 1: You know, we're all about earning more money, but getting
Speaker 1: intentional about spending less can be even more helpful. That's
Speaker 1: because less outgoing money will allow you to save more now,
Speaker 1: but it will also allow you to permanently decrease the
Speaker 1: amount of money that you'll someday need to fund your lifestyle.
Speaker 1: It's kind of like a double weym right. It helps
Speaker 1: out on the front end while you're saving up that
Speaker 1: money now, but it also helps on the back end
Speaker 1: to make sure that you spend that money judiciously as well.
Speaker 1: That being said, as you do earn more, it's crucial
Speaker 1: to bank your additional income, and we would encourage you
Speaker 1: as well to try to keep your lifestyle creep at bay.
Speaker 1: In order to achieve fire faster. You want to make
Speaker 1: sure that you minimize that lifestyle inflation. Yeah, lifestyle creep.
Speaker 1: It's one of my favorite terms in personal finance that
Speaker 1: doesn't get talked about enough. And when it comes to
Speaker 1: our money, I think all of us kind of identify.
Speaker 1: It's almost never that enormous purchase or that really stupid
Speaker 1: thing that we shouldn't have done buy in like a
Speaker 1: lake house when we didn't have the money for it.
Speaker 1: Oftentimes it's so small things that add up over time,
Speaker 1: hiring along service. Maybe for most of us, it's the
Speaker 1: small things that tend to ruin our budget, that lifestyle inflation.
Speaker 1: As we make more, instead of banking it, we tend
Speaker 1: to consume it, we tend to spend it. And so
Speaker 1: while that's one major thing we need to avoid if
Speaker 1: we're attempting to achieve fire, I think another thing, Matt,
Speaker 1: is that we have to massively lower our costs on
Speaker 1: the three biggest areas of our budget. And those are housing, transportation,
Speaker 1: and food. Firefolks tend to to house hack or live
Speaker 1: in much smaller accommodations than most people who earn similar salaries.
Speaker 1: Living close to where they work and not having a
Speaker 1: car is a route that many take right and eating
Speaker 1: out minimally while cooking almost exclusively at home is another
Speaker 1: way to save big. Almost anybody who has been pursuing
Speaker 1: fire for any period of time realizes that those are
Speaker 1: the major levels that they can pull right now in
Speaker 1: order to to massively increase their savings. Right if you
Speaker 1: go from a three bedroom house that you're renting to
Speaker 1: a one bedroom apartment, well, you can save a good
Speaker 1: bit of money every month. And likewise, if you're like
Speaker 1: leasing a car, let's say, or your cars worth dollars
Speaker 1: and you can downsize into a car that costs you
Speaker 1: five or six thousand dollars. Those are the kind of
Speaker 1: things that anybody pursuing fire would say those three areas.
Speaker 1: You can easily extract more savings out of all three,
Speaker 1: And if you do that, it's going to make a
Speaker 1: big difference in your budget and a big difference on
Speaker 1: your timeline to being able to reach that early retirement point. Yeah,
Speaker 1: focusing on those huge expenses can really make a big
Speaker 1: impact right there. There's so many little things that we
Speaker 1: can do in our lives to kind of optimize, uh,
Speaker 1: these small little winds, but you've got to start with
Speaker 1: the big things. There's only so much money that you're
Speaker 1: gonna be able to save by tweaking your thermostat a
Speaker 1: little bit or searching online for like promo codes when
Speaker 1: you're getting ready to buy something, or for a parking lot.
Speaker 1: You can save ten bucks, you know, for a one
Speaker 1: time parking fee. And granted that's not something that you
Speaker 1: should avoid, but it's also not gonna be the big
Speaker 1: difference maker exactly. And so so something else too. We
Speaker 1: certainly want to make sure that folks are saving their money,
Speaker 1: but we want them to be investing even more. Uh.
Speaker 1: You know, we've talked about the pittance that most savings accounts,
Speaker 1: even the ones that you know are our favorite online banks,
Speaker 1: that they're paying these days. It is not very high. Uh.
Speaker 1: And if you want your money to grow quickly, it's
Speaker 1: going to need to. If you want to achieve fire,
Speaker 1: then you're gonna need to invest a substantial portion of
Speaker 1: what you make. So let's do a little math, including
Speaker 1: some of the specifics on how to invest to achieve fire,
Speaker 1: you know, including you know, the pesky question of of
Speaker 1: how to even draw on funds in your retirement accounts
Speaker 1: before you hit retirement age. And we're gonna get to
Speaker 1: all those topics right after the break. All right, Matt,
Speaker 1: we're back from the break. We're talking about how to
Speaker 1: achieve fire. We're offering some simple steps and hopefully some
Speaker 1: practical takeaways already in the show, but now we're gonna
Speaker 1: get a little more math oriented, a little more nitty
Speaker 1: gritty when it comes to how we invest, how we
Speaker 1: take money out. That kind of stuff is really crucial
Speaker 1: in the fire conversation. It changes the dynamics of how
Speaker 1: you save and where you save if you're planning on
Speaker 1: working a much shorter amount of time and your retirement
Speaker 1: time horizon is longer, So let's talk about where to invest. Basically,
Speaker 1: if you're trying to to attain fire, it's really important.
Speaker 1: It's the most important thing is maxing out tax advantaged
Speaker 1: retirement accounts like a four one k I r A
Speaker 1: or h s A. Now we've talked about all those
Speaker 1: vehicles at different points in time on the show, so
Speaker 1: We're not going to go into a whole lot of
Speaker 1: detail now, but those are the accounts they're gonna help
Speaker 1: you for multiple reasons. If you're self employed, you can
Speaker 1: invest a whole lot every year inside of a set
Speaker 1: bi RA or a solo four oh one K, and
Speaker 1: in the set bier A specifically, you can save up
Speaker 1: to fifty seven thousand dollars this year, a lot of money. Right,
Speaker 1: So if you're banking it and you really really want
Speaker 1: to achieve fire, you know that you can invest a
Speaker 1: whole lot in a small period of time with those
Speaker 1: kind of limits in a tax advantaged account. Right, If
Speaker 1: you want to achieve fire, it's crucial that you take
Speaker 1: advantage of whichever of these accounts you have access to
Speaker 1: and put as much money as you possibly can in them. Right,
Speaker 1: we said h s A. Not everybody has access to
Speaker 1: an hs A MATT, but if they do, that's an
Speaker 1: important one that they should be putting money aside in
Speaker 1: any of these accounts that you have access to make
Speaker 1: sure you're using them. Yeah, and these are accounts, right,
Speaker 1: These are the different vehicles that we invest our retirement in.
Speaker 1: But what actual investments do we purchase. We're gonna mostly
Speaker 1: recommend stocks. A well diversified stock portfolio could be hard
Speaker 1: to stomach during downturns, you know, like the recent one
Speaker 1: that we had in March and April. But if we
Speaker 1: want to achieve fire, we're going for growth. That's why
Speaker 1: most fire proponents invest in the total stock market or
Speaker 1: the smp FI fundered index fund, you know, with incredibly
Speaker 1: low fees. Their money is actually invested in stocks in
Speaker 1: securities that are a little less conservative than the bonds,
Speaker 1: for instance, or other accounts like a money market account. Yeah, man.
Speaker 1: And by investing in those accounts in particular, as opposed
Speaker 1: to having more of your money in cash on the
Speaker 1: sidelines in a savings account or something like that, you'll
Speaker 1: also be avoiding taxes. This is another huge benefit in
Speaker 1: your attempt to reach fire right by lowering your adjusted
Speaker 1: gross income specifically through investing lots of your money in
Speaker 1: those tax advantage accounts. Specifically, it appears to the government
Speaker 1: right that you're earning less money than you actually are,
Speaker 1: which lesons your tax burden. So understandably, this is another
Speaker 1: huge level that people focused on early retirement look to
Speaker 1: legally pull in as many ways as possible. So, for instance,
Speaker 1: if you do put fifty seven thousand dollars into a
Speaker 1: set bi RA or undred into your four O n K,
Speaker 1: which is the limit for this year. For that your
Speaker 1: A g I goes down dollar for dollar with those contributions,
Speaker 1: lowering your tax liability in a major way. And that
Speaker 1: is why those tax advantage retirement accounts are so dang powerful.
Speaker 1: And so Joe, we know we're talking about putting money
Speaker 1: in retirement accounts, and personal finance nerds out there listeners
Speaker 1: to the show, they know that you can't touch that
Speaker 1: money until a certain age, right, and so how can
Speaker 1: you actually achieve fire? How can you retire early if
Speaker 1: you can't touch this money until you're much much older
Speaker 1: fifty and a half in most cases with those retirement accounts. Yeah,
Speaker 1: it stinks to be putting that money in and say
Speaker 1: I want to fire, but how do I touch it? Exactly? Yes, Yeah,
Speaker 1: that's a major question for those of us who want
Speaker 1: to retire early. But there are ways for us to
Speaker 1: avoid those penalties of withdrawing money from those retirement accounts
Speaker 1: that we just mentioned. One of them is the Rath
Speaker 1: conversion ladder. That's one that you should consider, but just
Speaker 1: know that it takes years of planning to pull this off.
Speaker 1: But if you are smart enough and you've worked hard
Speaker 1: enough to to be able to set aside that kind
Speaker 1: of money, you can figure it out, right. I just
Speaker 1: want to encourage folks to know that it is certainly possible.
Speaker 1: And not only is it possible, but you want to
Speaker 1: make sure that you take these steps in order to
Speaker 1: avoid those additional fees and penalties. Yeah. Man, if you
Speaker 1: attempt to withdraw funds from one of those retirement accounts
Speaker 1: we mentioned earlier, then you are going to pay a
Speaker 1: ten percent penalty on the money that that you're withdrawing
Speaker 1: from that account. That's obviously a major hit and it's
Speaker 1: not something that that you want to just freely give
Speaker 1: the government. And there are ways around it. You mentioned
Speaker 1: the Rath conversion ladder. That's one way around it. And
Speaker 1: there's also an arcane tax code provision called the seventy
Speaker 1: two T rule. It's a way of distributing some of
Speaker 1: the money from that retirement account that allows you to
Speaker 1: take a set amount each year for a recurring number
Speaker 1: of years. You want to make sure you work with
Speaker 1: a acts pro to ensure that it's done properly. You
Speaker 1: don't want to screw that up, right, And everybody will
Speaker 1: post a link in the show notes to to an
Speaker 1: article that's incredibly helpful thinking about withdrawing money from those
Speaker 1: accounts before you hit retirement age from our friend Brandon,
Speaker 1: who runs a website called the Mad Scientist. Because there's
Speaker 1: so much nuance involved, it would be really hard to
Speaker 1: describe in full how you take advantage of these rules
Speaker 1: on the show. It's so much easier to read his
Speaker 1: long form article that he wrote in order to get
Speaker 1: a good sense of how you actually pull that money
Speaker 1: out early. But suffice it to say, there are multiple
Speaker 1: strategies that can help you pull that money out without
Speaker 1: paying the penalty that would typically be imposed. That's right, Joel, Okay.
Speaker 1: One big question that we want to make sure we
Speaker 1: get to as well is a lot of folks might
Speaker 1: be wondering when have I saved up enough money? Like
Speaker 1: when can I actually retire? And for a lot of folks,
Speaker 1: having saved up twenty five times your annual expenses in
Speaker 1: an investment portfolio, that is a great mile marker, and
Speaker 1: so hopefully you're already tracking your expenses and so literally
Speaker 1: you just add up your expenses for the year, multiply
Speaker 1: that I and that number that result is your fire number. Typically,
Speaker 1: for most folks, that's going to be the number that
Speaker 1: they're gonna want to see in their retirement account. Having
Speaker 1: that much money saved up that allows you to withdraw
Speaker 1: four percent of that portfolio every single year without eating
Speaker 1: away at your principal amounts. Again, this is a rule
Speaker 1: of thumb. There's some folks who are probably willing to
Speaker 1: to say that they've achieved fire when they have maybe
Speaker 1: a little bit less than twenty five times there a
Speaker 1: new expenses. But then there's others Joel, like you and I,
Speaker 1: and we're looking to have a little bit more than that. Yeah,
Speaker 1: I don't just want to tesla. I want someone driving
Speaker 1: me around in it. You have a very high standard
Speaker 1: of what you're looking for. I can see, and I'm
Speaker 1: gonna I'm gonna say a whole lot more because of
Speaker 1: those ridiculous things I want. So in addition to that, though,
Speaker 1: I think folks who are are looking to achieve fire,
Speaker 1: they have a few other things they need to consider
Speaker 1: when they're trying to determine how much that they should
Speaker 1: take out of those accounts every year as well. Yeah,
Speaker 1: if you're an idiot like me and you want a
Speaker 1: Tesla chauffeur, it's gonna cost you and you're gonna have
Speaker 1: to save up more money. I'm totally joking, by the way,
Speaker 1: but yeah, in particular for fire folks, Matt, they do
Speaker 1: have more to consider. And I think you know, when
Speaker 1: you look at the numbers, saving up twenty five times
Speaker 1: your annual expenses leading to a four percent withdraw rate
Speaker 1: makes sense for so many people. But when you run
Speaker 1: the numbers for people looking to retire early, it does
Speaker 1: change the math just a little bit, right, because your
Speaker 1: money has to last a whole lot longer if you
Speaker 1: retire at age forty then if you retired at age
Speaker 1: sixty five. So a little bit more conservative math, I
Speaker 1: would say, is in order here. And again that's kind
Speaker 1: of part of the reason that Lean fire. That's not
Speaker 1: really on my radar. And I think at withdraw rate somewhere,
Speaker 1: maybe a little bit closer to three and a half percent,
Speaker 1: somewhere between three and a half and four percent is
Speaker 1: a better rate to plan on when you're considering early retirement.
Speaker 1: Maybe it's just me, Matt, but I'd rather plan ahead
Speaker 1: a little bit more on the front end and and
Speaker 1: work another year if I had to in in my
Speaker 1: fire plan in order to make sure I saved up
Speaker 1: ample funds as opposed to kind of chanting it and
Speaker 1: hoping that the four percent withdrawal rate works out. And
Speaker 1: it does in an overwhelming number of circumstances. But also think, yeah,
Speaker 1: when we're talking about retiring super early, there's some potential
Speaker 1: costs for a concern there with a four percent withdra
Speaker 1: all rate. Well, the other thing to mention two is that,
Speaker 1: I mean there's a spectrum in between fat fire and
Speaker 1: lan fire. Right. Uh, you don't have to only go
Speaker 1: bare bones where you're just barely scraping by in retirement. Uh,
Speaker 1: and you're only living on the road in a really
Speaker 1: really cheap used RV you know, ri, Yeah, exactly. Uh,
Speaker 1: there's a lot of ground in between that and having
Speaker 1: a tesla plus a tesla chauffeur. Right, And so I
Speaker 1: just wanted to mention that that there's a wide spectrum
Speaker 1: that you don't have to commit to one or the other.
Speaker 1: You can still continue to work, but maybe you don't
Speaker 1: have to, you know, stay in a position that that
Speaker 1: drives you crazy, or maybe it's an industry that you
Speaker 1: just don't really like. Once you're within that spectrum, you
Speaker 1: then have options. Right, So maybe you are working a
Speaker 1: terrible job and you've achieved lean fire, Well, you don't
Speaker 1: have to straight up and quit completely. You could then
Speaker 1: maybe take a different job that pays a little bit less,
Speaker 1: but mayne maybe you find way more fulfillments and happiness
Speaker 1: within that position that happens to pay less, and then
Speaker 1: you can continue to work in that position for for
Speaker 1: as long as you want. And that's what's great about
Speaker 1: pursuing financial independence overall, right, is that it does give
Speaker 1: you that freedom netflix ability, those choices. So if you
Speaker 1: save well over a good period of time, it gives
Speaker 1: you the ability, like you said, to choose lower paying
Speaker 1: work that's more fulfilling. That to me is one of
Speaker 1: the most gratifying and beneficial parts of the movement towards
Speaker 1: financial independence overall. And that's something else our listeners should
Speaker 1: be aware of. There is a great calculator called when
Speaker 1: I can retire on net worth of five and that
Speaker 1: will help you kind of plan for your future. It's
Speaker 1: easy to visualize what your numbers are and where you
Speaker 1: need to get to in order to achieve financial independence.
Speaker 1: It kind of lays out for you. Okay, I plugged
Speaker 1: in the numbers. I am seventeen point three years away
Speaker 1: at this savings rate from retirement, and so it can
Speaker 1: really plant a seed, I think in your mind to
Speaker 1: help you realize kind of how far along the path
Speaker 1: you are, how much further you have to go, and
Speaker 1: kind of put into perspective where you're at in regards
Speaker 1: to pursuing fire altogether. And we'll make sure to link
Speaker 1: to that in the show notes. Yeah, totally. What what
Speaker 1: I love about that calculator is literally all you need
Speaker 1: are two numbers like your income and your expenses, but
Speaker 1: then it crunches the numbers four unit. Yeah, like you said,
Speaker 1: it tells you the you know, the number of years
Speaker 1: it is until you can potentially retire. I love that
Speaker 1: and and like you said, it can at the very
Speaker 1: least kind of plan a seed. Uh. And Joel, one
Speaker 1: other thing too that we wanted to mention is that,
Speaker 1: you know, like we're talking about this from the standpoint
Speaker 1: of investing in the market, but we want folks to
Speaker 1: know that there are alternatives to investing in the market
Speaker 1: as well. Right, This is why that you know, you
Speaker 1: and I both love real estate investing, there are tax benefits, uh,
Speaker 1: and there is regular cash flow when it comes to
Speaker 1: real estate as well. You know, sometimes I think there's
Speaker 1: gonna be too much focus on the big nest egg amount,
Speaker 1: right when really you're just looking to replace your income,
Speaker 1: right You just want to have cash flow to be
Speaker 1: able to comfortably cover your expenses. If it's helpful for
Speaker 1: you to think on a more monthly time frame versus
Speaker 1: like this giant number that you have to achieve. If
Speaker 1: instead you can think, okay, cool, I know it costs
Speaker 1: six thousand dollars for me to live every single month.
Speaker 1: I need to find a way to replace that. Thinking
Speaker 1: about it in that manner might allow you to uh
Speaker 1: think through some of the different ways that you can
Speaker 1: generate monthly cash flow, right, Like whether that be like
Speaker 1: real estate. You know, some folks have written books, and
Speaker 1: when you write a book and you continue to sell copies, well,
Speaker 1: you continue to generate income from that, and that income
Speaker 1: can support your financial independence lifestyle well into retirement. That
Speaker 1: the the example you gave about somebody who needs six
Speaker 1: thousand dollars a month, it made me think, what if
Speaker 1: they had the goal of buying one rental property that
Speaker 1: would cash flow five a month every single year, and
Speaker 1: that's not easy to do in every single market, But
Speaker 1: there are some people that could set up their challenge
Speaker 1: in that way where they could achieve financial independence in
Speaker 1: twelve years based on real estate investing alone. I think
Speaker 1: thinking about it in kind of a more monthly income
Speaker 1: granular level like that can kind of help people come
Speaker 1: up with a more ingenuity approach to their goal achieving FIRE.
Speaker 1: Because I don't know, like you, Matt, I get tired
Speaker 1: of seeing the commercials for investment houses saying my retirement
Speaker 1: numbers four point two million or my retirement numbers two
Speaker 1: point nine million. It all feels so unachievable. It feels
Speaker 1: so far off, and it feels like it's going to
Speaker 1: take forever to get to that point. Granted, fire people
Speaker 1: who are let's say, investing fifty seven thousand dollars a
Speaker 1: year into a set by r A, they're going to
Speaker 1: get there a whole lot quicker. But it is important
Speaker 1: to note that there are other ways to do it.
Speaker 1: It's not like the only way you can approach it
Speaker 1: is to accrue just a massive nest egg of that
Speaker 1: size in those tax of mantage retirement accounts. People are
Speaker 1: getting creative with their approaches to fire, and there are
Speaker 1: some cool people just completely changing the script with their
Speaker 1: approach to how they're pursuing fire. Yeah, there are a
Speaker 1: lot of different avenues and approaches towards achieving fire, and
Speaker 1: it's worth thinking through the different ways that you find
Speaker 1: the most fulfilling, you know, the path to fire, like
Speaker 1: if you decide it's for you, it's not a competition,
Speaker 1: but you know, it can be a healthy challenge like
Speaker 1: it was for me. For many of our listeners who
Speaker 1: are stoked to save more money for retirement and to
Speaker 1: have more control over their future, uh, including where and
Speaker 1: how and when they work, and all of our money
Speaker 1: journeys are going to look different. So give yourself some
Speaker 1: grace if you do decide to pursue fire, and a
Speaker 1: word of warning as well, realize that it can become
Speaker 1: an unhealthy obsession when you have, you know, a certain
Speaker 1: number that you're striving after. I think sometimes folks can
Speaker 1: get a little too preoccupied with it and they forget
Speaker 1: to live life here now along the way, Yeah, for sure, uh,
Speaker 1: And Matt, of course, again, we totally resonate with the
Speaker 1: fire movement. There's there's so much of this community offers
Speaker 1: is a countercultural message really that can, when done well,
Speaker 1: reflect a healthy view of spending and saving and and
Speaker 1: that's kind of what's at the core of our message
Speaker 1: on this show. So we would say to everybody out there,
Speaker 1: don't attempt to live like everyone else. Right, most of
Speaker 1: the people out there, most of your neighbors are in debt,
Speaker 1: or at least half of them are, at least when
Speaker 1: we're looking at the stats, right that bear out of
Speaker 1: the financial problems that most of America is in. And
Speaker 1: realize too that small changes over time can lead to
Speaker 1: incredible results. If that giant retirement number I was just
Speaker 1: talking about, if that overwhelms you like it does me,
Speaker 1: know that small steps, uh, starting now, starting today, can
Speaker 1: when continued over a long period of time, really make
Speaker 1: a major impact on your life. And so fire isn't
Speaker 1: gonna be a goal for every single one of us.
Speaker 1: For those of you who are pursuing it, hopefully the
Speaker 1: episode was helpful. And then for those of you who
Speaker 1: hadn't really thought about it before, hopefully maybe some of
Speaker 1: the tenants and some of the ways that people approach
Speaker 1: their finances in the Fire movement, Hopefully that was helpful,
Speaker 1: and you can take some of those tenants, some of
Speaker 1: those practices kind of back into your financial life and
Speaker 1: how you are attempting to save and invest in cut
Speaker 1: costs as well. And one last little bit of encouragement too,
Speaker 1: is that I feel like the media has made fire
Speaker 1: look like something that's only for really high wage earners,
Speaker 1: right like for the engineers, for the software engineers only,
Speaker 1: and that it's not really attainable for a lot of
Speaker 1: other folks. But that's certainly not the case. It's attainable
Speaker 1: for school teachers, for photographers, for for podcasters. We even
Speaker 1: have a chance, Joel, and find attendants. I mean, really,
Speaker 1: anybody out there. We we know people in the movement
Speaker 1: who have all sorts of different careers and jobs, and
Speaker 1: you're right, I think sometimes that's how it gets pegged.
Speaker 1: But those certainly aren't the only people participating in the movement.
Speaker 1: It just depends on what you want your life to
Speaker 1: look like. It's about the goals that you set for
Speaker 1: for you and your family completely agree. Man. All right,
Speaker 1: let's get back to the beer that we had on
Speaker 1: this episode. Today. On the show, we had speedwayte out
Speaker 1: by Alee Smith, brewing out of San Diego, Matt, what
Speaker 1: were your thoughts on this beer? Man? Man? You know,
Speaker 1: when I saw this can, I thought that this is
Speaker 1: a beer I've had before. Um speedwayte Out sounds really familiar,
Speaker 1: But I feel like I would have remembered it because
Speaker 1: it's really really delicious, rich and robust. It's got a
Speaker 1: little bit of sweetness going on, but then the aftertaste
Speaker 1: it's a little dry. You know, it kind of has
Speaker 1: those coffee notes going on with a little bit of
Speaker 1: cocoa nibs. Has that sweetness upfront that I typically find
Speaker 1: myself drawn to, but then it didn't end really heavy
Speaker 1: where it felt like, you you know, ate like a
Speaker 1: big piece of cake. Yeah. I really thought this is
Speaker 1: gonna be a super huge beer that weighed me down,
Speaker 1: and it definitely wasn't the case. I agree this is
Speaker 1: this beer is a true classic in the craft brewing world. Right.
Speaker 1: It's from a brewery that's been around for quite a while,
Speaker 1: and it's got, like you said, the coco nibs, the
Speaker 1: dark chocolate notes, but it's still retains a pleasant sweetness
Speaker 1: I think. And and then I really appreciated to a
Speaker 1: little bit of toffee going along with the coffee and yeah, overall,
Speaker 1: just a just a delicious stout. I'm a big fan,
Speaker 1: don't under this beer has like kind of like a
Speaker 1: cult following for who knows how many years, like twenty
Speaker 1: years or something like that. Plus it's nice to switch
Speaker 1: it up and have an Imperial Coffee stout right in
Speaker 1: the middle of the summer. So, Joel, that's gonna be
Speaker 1: it for our episode today. Man, Listeners, you can find
Speaker 1: our show notes up on our website at how to
Speaker 1: money dot com. Yeah, and if you haven't left or
Speaker 1: a view yet for the show, we would appreciate if
Speaker 1: you would hop on over to Apple Podcasts and leave
Speaker 1: a nice note for other potential listeners to see. It
Speaker 1: helps spread the word about the show and helps increase
Speaker 1: the possibility of financial independence for everyone, and that's something
Speaker 1: Matt and I feel passionate about. So all right, buddy,
Speaker 1: that's gonna do it for this episode. Until next time,
Speaker 1: Best Friends Out, Best Friends Out.