Badass vs Dumbass
Master your Financial Kung Fu to be one and not the other.
Go to Sifu’s Notebook for 5 Core Principles of FIRE – Is it for You?
Primer: Who are Sifu & Ronin
Episode 12: Ronin wants to DJ
Ronin: Sifu, I’ve been hearing about this thing called FIRE. But I’m guessing it’s not about the sensation I felt last week when one of you jabs landed solidly into my gut.
Sifu: Right you are, #1. This FIRE won’t leave bruises—at least not on your body. FIRE stands for: Financial Independence, Retire Early. It’s more about setting your bank account on fire, in a good way.
Ronin: Here I thought it was about lighting my paycheck on fire every weekend. Living for the weekend, baby!! So what exactly is the big dealio with this FIRE biz?
Sifu: Padawan, FIRE is a path to freedom; this I believe is ultimately what you’ve been seeking. It’s about financial control, retiring early, or making work optional—without resorting to a life of crime. Had to throw that in, knowing you like a menu with “All Options on the Table”!
Ronin: Yuppers. First thing that cross my mind was “where do I get those cool rubber masks that look like ex-presidents”. So if that’s out, how the hell do I get enough stacks to retire early, without selling my organs on Amazon?
1. Aggressive Savings
Sifu: Keep you liver, kid. Knowing how much you like partying it up every weekend, I think you’ll need it for yourself. The first principle to FIRE is aggressive saving—about 50% to 70% of your income.
Ronin: Whuuuut? 50 to 70%? Are you for reals, Morpheus? I am trying really hard to get to 20% these days. That’s kinda like asking me to dodge every one of your punches blind-folded! Spirit of Neo – where are you?? You are trying to kill me! I know you say, “Whatever doesn’t kill you makes you stronger”, but c’mon dude. Why do you always have to test my mortality?
Sifu: Relax, #1 – it’s not as deadly as all that, and I trust even Neo Lite can do it. By saving aggressively, you’re building a fortress of wealth that lets you escape the grind earlier. Unless, you love your job so much that you don’t ever want to leave the 9-5 behind…
Ronin: Yo yo yo, dude. I did NOT say that. Job is a-ok, for now, but I’m young and can take the punishment. I sincerely doubt I’ll feel that way in 20 years. I might not last 10! It sounds like I have a choice between taking Mr. Smith’s endless punches from work or a different type of punishment from a lack of spending.
Sifu: Pick your poison, son. Do you want 40 more years working for The Man, or perhaps cut that in half with a little bit of financial engineering?
Ronin: With the additional money I need to save, I’d better start engineering a way to make white rice taste like surf and turf! Ok ok, I get it, Sifu. No pain, no gain. It works in the gym and I suppose it works here too. Now, I can’t just bury these extra stacks in the backyard. Your pitbulls will dig ‘em up and have them for lunch, won’t they?
2. Invest Wisely
Sifu: Indeed, junior genius – no burying of anything other than bodies. All your extra savings needs to be thoughtfully invested. It’s not enough to save—you’ve got to put that money to work. Trust me on this one: your money working for you is magic. Do enough of that, and it will take the place of you having to work! You onboard, #1?
The rich don’t work for money. They make money work for them.
Robert Kiyosaki
Ronin: Working for me, boss? Like an army of Minions? So Cool – 100% onboard, Cap! Now, what do these FIRE peeps invest in exactly? Lottery tickets? Crypto? Beanie Babies? Air Jordans? NFT’s?
Sifu: Oh brother! There you go again with your expansive menu of options, #1 – none of which are preferred for what you’re trying to achieve. Many wise investors prefer low-cost index funds for broad market exposure. Some dabble in real estate, dividend stocks, or other income-generating assets. You want assets that have proven over time to grow as quickly as possible, but also as safely as possible. That way, your money works while you sleep.
Ronin: I do love my sleep. And if the Minion Army of Money is working all night long for me, I’ll sleep very soundly! Makes sense. What’s next, Gru?
3. Frugality and Minimalism
Sifu: Excellent, Sleeping Beauty. The third principle is frugality and minimalism. It’s about living below your means, not depriving yourself, but focusing on what truly brings you joy.
Wealth consists not in having great possessions, but in having few wants.
Epictetus
Ronin: Wow, slow down there, bossman! How exactly is that not deprivation? I quite enjoy my stuff!
Sifu: You see #1, you’ve been sucked into the rabbit hole of consumerism. Kinda like taking the Blue Pill in The Matrix, Young Neo. Once you’re in that elaborate world of shiny beautiful things, it is easy to forget what is real in life. There is actually joy that comes from not being a slave to material possessions. It’s about valuing experiences over things, like the joy of watching your bank account grow instead of your collection of useless gadgets.
Ronin: Legit reference, Sifu! Yeah, if I’m going to be Neo, I think the decision to take the Red Pill was very difficult, but necessary. Otherwise, we’re living a fake life, aren’t we?
Sifu: Bazinga, Young Sheldon! You’ve got it.
Ronin: So, I trade in my shiny toys for a simpler life? Sounds like the path of a monk. Can I at least get a cool robe? Dark navy, size medium please, in extra comfy 100% pure organic sea island cotton.
Sifu: Impeccable taste, #1. If you follow your path, I will see to it you get one in your exact specification. You see, some simple luxuries are still allowed in your FIRE journey. Win-win!
Ronin: Schweeeet! What’s next, boss? What can I do to ease the pain of a frugal monk? A frugal monk in a badass robe, that is.
4. Creating Multiple Income Streams
Sifu: Ah yes, Junior Gecko, the fourth principle is creating multiple income streams. This can include side hustles, rental properties, dividends, or even starting a small business. It’s like having a Bat Utility Belt hidden under your badass financial robe. One fitted with a multitude of near lethal weapons – from the arsenal of Bruce Wayne and Lucious Fox; more ways to strike and defend. Financially speaking, of course.
Ronin: Cool, cool. So, instead of putting all my eggs in one basket, I have a whole chicken farm? Now you’re talking my language. But what’s the final step, Batman? Do I finally get to put my feet up and sip piña coladas in Fiji?
5. Define your FIRE Number
Sifu: Almost, Robin. Patience, we’re getting there. The last principle is setting a clear goal—your FIRE number. It’s the amount of money you need to retire comfortably, like a pirate chest that never runs out of gold. Some people like to refer to it as “FU Number” – has a nice ring to it, yeah?
Ronin: FU Number – oh man, I love it! BTW, my magic number is 88, boss. Please say I nailed it!
Sifu: Not 88, smart guy. There is a simple formula you can follow. You multiply your annual retirement expenses by 25, based on the 4% rule. That’s the amount you can withdraw annually without depleting your savings over 30 years.
Ronin: So, if I need $40,000 a year, my FU Number would be…$1,000,000. Only one mil! I can do this!
Sifu: You betcha, #1. Once you hit that number, you’re free to do as you please—retire or travel. You could even pick up a part time gig doing something you actually like doing, instead of something you’re forced to do. And, as a bonus, you don’t even need to get paid, cuz you’re FIRE, baby!
Ronin: Like DJ’ing my banging playlist on the beach – that shiz I do for the love of it. No charge on Ladies Night at my beach club. And as everyone knows, every night is Ladies Night, am I right, my wingman?
Sifu: Right you are … Goose. I’m always Maverick – you know that 😉
Sifu’s Notebook
What is FIRE?
The Financial Independence, Retire Early (FIRE) movement has surged in popularity as more people seek a life of freedom from their 9 to 5 job before the usual retirement age of 60 or 65. At its essence, FIRE is about achieving financial control to the extent that you can retire early or make work optional. This lifestyle resonates with those who wish to escape the rat race, follow their passions, spend more time with loved ones, or simply live life on their own terms.
The 5 Core Principles of FIRE
To fully comprehend FIRE, it’s crucial to understand its core principles, which can guide anyone toward financial independence.
- Aggressive Savings: The cornerstone of FIRE is a high savings rate, often between 50% and 70% of your income. This rate is much higher than the standard recommendation of saving 15% or 20% for retirement. The idea is that by living frugally and saving aggressively, you can accelerate wealth accumulation in order to retire much earlier than the usual retirement age.
- Investing Wisely: Saving money alone is not sufficient. Leveraging the power of compound interest by investing is crucial to growing your wealth. FIRE advocates often invest in low-cost index funds, which offer wide market exposure with minimal fees. Some also invest in real estate, dividend stocks, or other assets that generate healthy passive income. The goal is to create a diversified portfolio that will grow over time and support you in retirement.
- Frugality and Minimalism: A key component of FIRE is living below your means. This doesn’t imply a life of deprivation, but rather making thoughtful decisions about spending. Many FIRE advocates embrace minimalism, valuing experiences over material possessions, and finding happiness in simple, affordable activities.
- Creating Multiple Income Streams: In addition to saving and investing, many in the FIRE community emphasize the importance of building multiple income streams. This can involve side hustles, rental properties, dividends, or even launching a small business. Diversifying income sources lessens dependence on a single job and speeds up the journey to financial independence.
- Define your FIRE Number: Achieving FIRE involves defining a clear financial target, often referred to as a “FIRE (or FU) number” or target net worth. This figure is usually calculated by multiplying your estimated annual retirement expenses by 25, based on the 4% rule. The 4% rule indicates that you can withdraw 4% of your portfolio each year without depleting your funds over a 30-year period. Reaching your FIRE number signifies that you have sufficient savings and investments to maintain your lifestyle indefinitely.
Is FIRE Right for You?
The allure of FIRE is its promise of freedom and control over your time. However, it’s not suitable for everyone. The path to FIRE demands discipline, sacrifice, and a readiness to make unconventional lifestyle choices. Before committing to FIRE, it’s crucial to reflect on your values, long-term goals, and risk tolerance.
FIRE can be appealing if you:
- Value freedom over security, prioritizing autonomy and control over your time.
- Are willing to make sacrifices, focusing on long-term goals rather than short-term gratification.
- Have a high tolerance for risk, accepting uncertainties like market fluctuations and inflation.
However, FIRE might not be suitable if you:
- Prefer a conventional lifestyle and are reluctant to significantly change your spending and saving habits.
- Value stability and security, finding the uncertainties of early retirement challenging without a safety net.
Conclusion
FIRE is more than a financial strategy; it’s a lifestyle choice that mirrors your values and priorities. By saving aggressively, investing wisely, and living intentionally, you can take control of your financial future. Ultimately, the path to FIRE is unique to each person, and it’s up to you to find the right balance between work, savings, and freedom that fits your life.
