Monthly Archives: August 2016

FIRE.016 What do you do?

Imagine saying this when you meet someone “..well you know, I enjoy my day—just doing whatever I want.” Oh man, let the judgments from social interactions begin. If you thought people base their first opinion on how someone looks, let me tell you that there is a WHOLE other level of judgment happening 60 seconds later.

Of course when you meet someone, one of their first questions will be “what do you do?” If you are FIREd with a MAJOR CAPITAL E (for Early/young) it is so shocking to most people that they can’t even comprehend what you’re talking about.

I’m sure you’ve read all the articles online and seen the news stories about American savings rate being extremely low and the fact that more than half of all American adults have to real savings for retirement. Even the number of $100,000 seems astronomically huge to some, whereas those nearing retirement realize $100,000 is nothing. There is no way you can live off 100k. Well, 100k is fine if you happen to have a pension that funds all your needs AND is inflation adjusted. That seems almost like winning the lottery to many people.

So trying to explain FIRE to people who feel like their finances are under fire is really like speaking two different languages. The differences are as clear as people who may see you spending less (driving older cars, living in the same/smaller house for decades, not having every new everything) and not realizing your spending patterns are designed to even out spending amounts while working with post work spending. One example might be work 30 years and spend half your salary and save half your salary. Then the 30 years of savings can be used for 30 years of FIRE. Compared to spending all (or more than) your income in the first 30, then having to work for the next 30 years to pay for the seconds 30 years.

The key is to find value and enjoyment from your life. We were not penny-pinching frugal masters, but rather spent smart and saved all the time. We planned what we wanted and saved for those items. Once in a while after having the money set aside, the item didn’t see as interesting.

So back to the topic of not having to grind at work every day. Is your job “what you do?” Or is your job what you have to do to pay for your lifestyle.

My wife told me before we FIREd it would be hard to explain to people that I was “retired.” I told her, no way, we worked hard and we saved well and it was our choice. Of course, she was right. FIRE seems unfathomable to most people.

So now I just say “I’m a consultant” or “I teach at the Community College.” Then I can see they think, “how nice, you’re a teacher.” It’s a much different interaction than when I was an IT professional. Either way, it stops the “what do you do” nightmare and lets me move the conversation on to a more interesting topic for them.

If you think I’m wrong, just try telling someone that you’re retired early (followed in a couple minutes with “just joking, I’m doing a study…”) and see how the conversation goes.

Hmmm “I’m a blogger…” maybe I could try that one.

FIRE.015 Track your Net Worth !

Your Net Worth doesn’t lie. Net worth is your report card, your score sheet, your scale, a thermometer—all of this in one number. So is your net worth where you should focus the most energy? I believe yes and no. I know this info is everywhere, but I have to share my thoughts because it is YOUR foundation.

Tracking your net worth over time is extremely important to see your financial trajectory. Those reading this probably already have a tendency to see an upward trajectory of net worth. The trajectory may have started at zero, or may have started at -$10,000 or -$20,000 or lower. What matters is the direction of net worth. Surely we all want our financial situation to show improvement, no matter what the Y axis is currently.

Net worth doesn’t care how much your salary is from year to year. The change over time will show you how you manage your spending/saving in relation to your income. So by ignoring your income stream(s) and simply viewing assets vs. liabilities, you get a black and white grade.

What can you do with your current grade? It will let you determine if you are financially sound. It will show you if you are preparing for the future. The “future” could be 30+ years from now, or it could be 8 months away when you have an emergency expense.

The long term goal of your net worth may be to aim big for Financial Independence. This could be defined as the point when your assets generate enough income to support your financial needs. At that point, you don’t need to “work” for money—though many people who are financially independent still work in many different ways. I can tell you that it’s truly much easier to go to work each day when you know you don’t have to work, but instead, continue working because you enjoy what you do. Many people give their time, energy, effort to causes they believe in. Don’t believe this is not “work,” it’s just not for a salary. This is the “no” part of focusing your energy from paragraph one. At some point you do not need to concentrate and track your net worth, but instead, live your life. Give to others as you can.

I believe the ONLY goal of net worth is to strive to increase the amount each review period. It doesn’t have to be a huge increase (especially if you start early), it just needs to improve quarter after quarter, year after year. Hopefully, a plan with a goal in mind.

The key component of a growing net worth is a positive cash flow. Not spending all of your income is a very important component to an easier life. Keeping spending under control, or increasing your income to offset your spending will only help your net worth grow.

Tools: How did I make this process less torturous (though I’ve learned to enjoy the process immensely)? I love using the wonderful tools from Personal Capital and Mint. Much has been written about these websites and assuming their security is top notch, there is NO reason not to let their dashboards show you how you’re doing. You can view everything from a high level, or dig into the details (macro vs. micro—to those of us nerds).

Tip: start your tracking—setup your accounts—as soon as possible. You want to get a longer historical reference as you grow your net worth. I really wish these tracking tools were available a decade ago because they are so much better (and easier) than my historical spreadsheets. Quicken/MS Money were not my favorite tools.

No matter what shape your finances are in, it will only help for you to start tracking your net worth. It might not feel great, but it will help you.