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How to make F.I.R.E. work for you

stash fireworks.jpg

By Tierney Kain | Stash Staff Writer

If I could pick anyone to be my president, I’d pick Bill Pulman from Independence Day. Sometimes if I’m feeling emotional already and I want a good cry, I’ll just pull up the Youtube clip of his speech before they fight the aliens on July 4 and weep over how much I love America. (And freedom and independence.)

WHAT IS FIRE?

Speaking of independence, let’s talk about Financial Independence—specifically, the concept of FIRE. FIRE is an acronym for a financial philosophy centered on Financial Independence, Retire Early. (For a great summary of what FIRE is, along with every practical application you could ever think of, check out more on Reddit).

In honor of Independence Day, I took some time to chat with Stash's founder, Priya Malani, about her thoughts regarding this financial doctrine and whether or not she’d recommend this philosophy to her clients.

Financial Independence, at its highest level, is having enough money being generated as passive income so that you can retire early (passive income is things like portfolio interest or real estate). One thing to consider here is your own personal definition of financial independence.  “Financial independence means something different to everyone,” Priya says. “But, at the end of the day, independence is knowing where you stand financially and having the power to make the decisions that you want to make. Guilt-free spending is financial independence.”

Many subscribers of this philosophy advocate huge rates of savings. While most financial experts say between 10-20% of your income is a good rate of savings, FIRE savers often hit savings rates between 40-75% of their total incomes. A lot of the blogs and posts I read about FIRE have people boasting about how they avoided spending money on vacations or eating out so that they could pad their piggy banks a little more. But, is it worth sacrificing your lifestyle today for your early retirement?

“Optimization is a word we use, maybe even overuse, at Stash,” Priya says. “What compromises are you comfortable with making now for a future that, frankly, is not guaranteed? You could restrict your lifestyle today for your future tomorrow…or you can come up with a financial game plan that ensure you're on track for tomorrow while still enjoying today.” Priya then told a story of two clients who struggled with implementing the principles of FIRE. The wife (and soon-to-be mom) had been wanting two strollers. One smaller one that could be easily packed up and taken on the train or bus, and then a bigger one suitable for leisurely weekend strolls. The husband, though, didn’t want to spend the money on two strollers when one would work just fine. His thoughts were they needed to keep saving. Priya was able to show them that their current game plan actually had room for them to buy that second stroller—and it wouldn’t change a thing about their future financial goals in life. “Don’t save for the sake of saving,” she often counsels clients. “Don’t wait until you’re retired to live your life. It’s all about balance, cliché but true.”

This is so true, and it’s a big reason why I could never get fully on board with FIRE. I love traveling. I love shopping. I enjoy trying new restaurants, and I like buying nice things. The thought of living off ramen noodles and grabbing a couch from the thrift store gives me the creeps. If I can create a financial plan that allows me to do what I enjoy while also saving for my future, I think that’s the best of both worlds. 

Start ASAP + Be Deliberate

The two biggest steps towards a FIRE lifestyle is to reduce expenses and increase income. Priya agrees here.  “Making more and spending less are the two levers that drive your financial life…but making more is definitely more fun.” Again, it’s all about optimization and balance. “Be savvy, and optimize your situation. The more efficiently you use your financial resources (a.k.a income) the more stuff you can do in life. And, the sooner you start to save, the less you have to save overall.” Priya often uses the following example to illustrate the irreplaceable value of starting ASAP. 

Take a 25-year-old who starts saving $100 a month for ten years. By the time they’ve turned 65, that money has grown into $200k. Then contrast that with a 35-year-old who starts saving $100 a month for thirty years. By the time they’ve turned 65, that money has only grown into $149k. Even thought they saved the same amount for 3 times as long, the saver who waits 10 years, NEVER catches up unless they start saving more. The moral of the story here? Don't wait!

The last major tenant of FIRE is investing—you’ll need your money to start working for you. Look into things like passive index fund investing or long term sustainable investment returns. Even real estate works here.  If you’re anything like me, researching and comparing funds or investments for longer than sixteen seconds makes my eyeballs start to bleed, and I’ll eventually feel the need to go check out what cats are doing on Youtube. That’s where I’m thankful for people like Priya and her team at Stash—as long as I do my part to automate my savings, they do the hard part of researching and executing the best possible situation for my money.

F.I.R.E TAKEAWAYS

Lastly, there are a few practical pieces of advice associated with FIRE:

1.)   Earning More.  It’s never a bad idea to find the best paying job you can. As a generation, we’ve been encouraged to ‘follow your dreams!’ and ‘do what you love!’, and taking that advice is okay as long as you can accept the financial consequences. I may think my calling in life is to write recaps for every Bravo show ever, and that might fulfill me on a deeply emotional level…but I’ll also have to accept I’m not going to make as much doing that as I would being a consultant to a banking institution.

2.)   Avoid Long Term Commitments. Commitments can include houses, cars, and even marriage. And…yeah. That’s good advice. Don’t buy a brand new house when you know you want to leave the area in the next six months. And obviously, yes, don’t marry someone you’re iffy about (no matter how grand your Wedding Day Pinterest board is!) “Our generation is part of this sharing economy,” Priya says. “Why buy a car if you can UBER?” The rapidly changing sharing economy may begin to change some of our expectations of what financially stable adults do. If you only use a car on the weekends and catch the subway during the week—why carry over that car payment for essentially eight days of use per month? These are smart financial decisions you can think about and make for yourself. And the same thing with marriage—a prenuptial agreement is never a bad idea. Just think about it like car insurance—you don’t plan on getting in a car accident, but if you do, you’re sure glad you opted for the insurance.  The majority of marital arguments are about money, and if you have a solid financial game plan (a.k.a. Stash Plan), you have a great buffer.

3.)   Avoid Owing Money to your Future Self.  Don’t buy things now that you’ll have to pay for later. Save up your pennies until you can afford to pay for it right when you want it. Priya and Refinery29 did a great article about the proper use of credit cards here. “Use your credit card like it's a debit card,” Priya says. “Which means don't charge more on it than you can afford to pay off in full each month."

So in closing? The principles of Financial Independence and Retiring Early can work—as long as you can define what they mean to you. Having a financial advisor (like the team at Stash) can be a great tool in designing your most optimized financial life. “You can have your Tesla and drive it, too,” Priya says. “You can absolutely have the best life you can now while still preparing for your future. At the end of the day, it’s about balance and learning how your money can work for you. That’s what we do at Stash for our clients, and that’s what we can do for you too."

Tierney Kain is a HENRY™ based in D.C. She is a published writer (both fiction + non-fiction), and has worked freelance as a branding consultant, technical writer, and copy editor. She has a penchant for all things personal finance...and youtube videos of cats.

After hiring Stash to build her financial game plan (a.k.a. Stash Plan™), she was immediately hooked to their style + philosophy. The love was mutual and the rest is history.