In 1994 William Bengen, a financial advisor, articulated the 4% withdrawal rate as a rule of thumb. Two years prior, Vicki Robin and Joe Dominquez published the 1992 best-selling book “Your Money or Your Life”.
These two events served as the foundation of the FIRE movement for the last 25 years.
I started my Financial Independence journey 19 years ago and successfully crossed the FI mile marker 12 years after the planning and the execution of the plan.
Interestingly, my mindset of becoming financially independent was not from the FIRE movement. As a matter of fact, I did not know anything about FIRE until the very last 2 years.
The idea started in my early thirties when felt strongly that I need more freedom and flexibility to design a life that no job from 9 to 5 can possibly provide.
Although I don’t plan to ever retire, but I understood the fact that everyone will eventually has to disengage, voluntarily or involuntarily, from the traditional work force – and the financial math is exactly the same.
In all cases, it is best to plan for the voluntary separation!
As for me, I want to have the total freedom of my day to pursue my own interest while I am young and active – I felt I have so much more to offer only if I have more time and the financial resource to meet the obligation to my family.
So below are my shared thoughts for your own FIRE journey.
Have a clear financial objective!
The Financial Independence math is shamefully simple. It has been worked out by many generations of entrepreneurs in the past and field tested by the countless generations of retirees.
I am going give you the Financial Target for all incomes levels. But, I will not repeat the math proofs in the many retired books and the related studies.
As I said, the math is extremely and shamefully simple, but first you have to evaluate yourself, your family if you are financially responsibility for them, of the social tendency.
Meaning, most of us are “monkeys see monkeys do” creatures. It is extremely challenge for many to do things different from others within the vicinity of external environment.
If you and your family have high social tendency, it is best to take statistical median income of the state or country and time 25 – this is your Financial Independence target.
Median by definition, separate 50 percents of the population above and below the statistical income derived from the data collected from the entire country or state.
For example if you research the “median household income in the United States 2019”, the data pointed to the mid $60K.
Let’s set it to $65K and multiply the median income with 25, the resulted financial target is $1,625,000 – $1,625,000 of investible asset will produce $65,000 per year of income for at least 30 years according to many Monte Carlo simulations.
The calculation of the Financial Independence target using the median income takes into consideration of the psychological tendency for many of you to act and behave in accordance to the social structure.
Another way of calculating Financial Independence target without considering the action and behavior of others around is shown below.
Regard of your incomes, if you want to scale your own personal Financial Independence summit in –
- 10 years – Save and invest 60% of your after tax income
- 15 years – Save and invest 50% of your after tax income
- 20 years – Save in invest 40% of your after tax income
- 35 years – Save and invest 15% of your after tax income
The 10, 15 and 20 years are typically employed by the FIRE community to achieve FI in the age range from 35 to 55.
The people who used this calculation to establish FI target and successfully achieved the goal are typically independent thinkers, educated and made more than the average – most importantly, they are less convicted to the social structure surrounded them.
Have a sensible mixture of conviction and passion!
The human species in comparison to other animals have a greater tendency to delay gratification for a better pay day – no animals are willing to invest times and resources and endure long hours of laboring through college for better opportunities later in life.
However, the majority of the population will not have the necessary conviction and determination to follow through with their dreams and aspirations – most dreams and aspirations are remained as defined dreams and aspirations all the way to the end of their lives.
Financial Independence aspiration requires substantial conviction and determination over a long period of time – any chosen time frame of less than 10 years will have a high probably of failure.
Don’t you ever notice that anyone who lost weigh in a short time frame will gain the weight back subsequently!
The necessary ingredient to incorporate into any FIRE game plan is passion. Passion is necessary for the required conviction, determination and the stretch of the journey.
Passion is an internal attribute within an individual. Yet, it is excitable with the external stimulus. It is this state of excitement that gives the experience that life is journey and not the destination.
Simply stated, if you are unable to find the joy and excitement in what you do along the way – the end result in achievement will NOT be as you have been imagined.
Be part of a moderate and balance social structure!
Regardless of personal belief, we are a product of our genes and environment.
The level of conviction and determination is highly correlated to the social structure surrounded the individuals.
If your parents are college graduated, you are primed to have the potential for higher education – unconsciously, you are more convicted and determined to have a college education.
If your friends are overweighed, you are primed to have the potential for obesity – unconsciously, you are more convicted and determined to walk the path of lifelong weight related problems.
A moderate and balance social structure ensures financial security, relationship stability, health sensibility and proper view of humanity – undesired extremities in emotions, actions and behaviors are kept at minimal.
Once you have established the moderate and balance social structure to incubate your dream and aspiration – it is just a matter of time and consistence of effort that will bring it into reality.
At last – efforts!
A philosophical position is a hallmark of the human species. No other animals on this earth is equipped with this infinite seek from within – it is the seed for all of realities.
However, these internal gems will remain hidden without physical actions.
For example, once you have established an ideal weight along with a workout plan for yourself and found a niche of friends with the same values – it is the actual execution of the workout plan that loses the access weight.
Once I have calculated the Financial Independence target, it clearly showed that I will not be able to achieve FI in the time frame I have set for myself.
First and foremost, I optimized our lifestyles – this is most crucial step in all Financial Independence plans. It is also the easiest because you are in total control.
Once the lifestyle is optimized – I recalculated the numbers and found it fell short 5 years.
At which point, I decided to sacrifice the weekends with my family and few nights on side hustles and after 2 years of the momentum – the incomes verse expenses were in lined with the FI time frame.
Once my child has reached her 2nd birthday, I came to the realization that I will sacrifice 10 years of life with her and my wife if I continue with the 80 hours work week.
Based on the financial calculation, I needed an increase in 30% of income on top of my engineering salary to make the FI target.
Other than investing in index funds, I have never explored the world of entrepreneurship due to the overwhelming financial responsibility to my parents and my own young family – financially, I cannot fail.
Investing in higher education was the best option, 2 years and $15,000 of tuition will elevated my training up to the Master of Computer Science – the 30% increase of income was highly probable.
It was a good bet – the first time in my early 30’s, I cleared the 6 figures income without side hustles.
The personal example I have provided clearly demonstrated that the execution of mental and physical efforts are required for all dreams and aspirations beyond the realm of the philosophical inspiration.
Without consistence yet sensible effort – dream will remain as dream!
Let’s play the game of life!
