Author Topic: What is the FI part of FIRE? Can someone draw an illustration?  (Read 6076 times)

Emergo

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Right now all I know about this MMM plan is just keep a good savings rate and invest. If i continue at my current rate, i will retire in 17 years. But i've never considered what the FI part means. Does it get easier halfway to my 17 years end? Or does it pretty much mean nothing? Thanks.

superone!

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #1 on: March 29, 2016, 08:00:40 PM »
FI is all I'm looking to do! It means that you're financially independent and that you *could* retire early. Some people will hit FI, but decide they want to keep working for a while longer because they like what they do. :)

If you plan to retire in 17 years, then I'm guessing you are planning to RE as soon as you are FI....? Unless you could retire now but don't feel like it yet.

Emergo

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #2 on: March 29, 2016, 08:08:00 PM »
Oh.... that sucks. Thought my path to retirement would get easier along the road...

kasperle

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #3 on: March 29, 2016, 10:29:32 PM »
Emergo, it's not about it ever getting easier, nor does it "mean nothing". Pursuing FIRE, to me, is about separating happiness from spending money. It's not about saving up lots to be able to spend lots, or anything like that. The saving bit just provides a way for you to eventually quit your 9-5 (if you so choose) to pursue other interests to make you even happier, and/or to provide a sense of security.

If you're finding things difficult, that may be an indicator that you're saving too much. Because most calculations to FIRE assume that your rate of saving remains the same, you should expect your life post-FIRE to be pretty similar to your life pre-FIRE (aside from the fact that you may quit your job once FIRE'd).

2Birds1Stone

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #4 on: March 30, 2016, 06:08:59 AM »
Your path will get easier. For example, I can live a ridiculously cushy lifestyle on ~$30k USD/yr. That would mean my retirement number is ~$750k USD.

However in my $2,500 monthly budget $1,540 is "necessary" expenses and $960 is discretionary.

This means that when my 'stache reaches ~$460k USD I would have my living expenses covered without having to work another day in my life. At that point work becomes much less stressful and I could either go to part time, take 6-12 month contracts with breaks in between, take a gap year or two, etc. Financial independence means having choices. 

rubybeth

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #5 on: March 30, 2016, 06:53:02 AM »
Well, I think in some ways, it does get easier. I have noticed that it hardly feels notable to be saving so much anymore; it just seems normal to me to save this much, and I would like to save more. So that normalization is something.

Also, watching your savings grow is somewhat novel--seeing the net worth go up is nice.

And I have also read here and elsewhere that many people who know they can quit their job and live comfortably forever have some fun stories--not giving a shit what your co-workers or boss think, the freedom to try a crazy idea and risk getting fired, the ability to negotiate a sabbatical or extended time off and be able to quit your job--I think that stuff sounds pretty fun.

I have a sort of minimum number I would need to consider me and DH 'financially independent' and that would cover our basic living expenses, and then there's the larger goal to have some extra funds for travel and fun stuff where we would actually quit our jobs, and then I would consider us 'retired.'

boarder42

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #6 on: March 30, 2016, 06:58:25 AM »
confused as to how you're 17 years away as a young engineer in houston saving what i thought was half your income?

ooeei

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #7 on: March 30, 2016, 07:17:37 AM »
Right now all I know about this MMM plan is just keep a good savings rate and invest. If i continue at my current rate, i will retire in 17 years. But i've never considered what the FI part means. Does it get easier halfway to my 17 years end? Or does it pretty much mean nothing? Thanks.

FI means "financially independent" - you have enough money that you don't ever need to work again.  RE means you retire early.  If you are FIRE it means you have enough money that you don't need to work, and you retire early.

Some people are FI and still work because they like working.  It doesn't change anything about the time to reach your goal.

Runrooster

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #8 on: March 30, 2016, 10:43:22 AM »
confused as to how you're 17 years away as a young engineer in houston saving what i thought was half your income?

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Pete gives 17 years as the FI for 50% savings.  It will be faster if he gets raises or has savings. It will be slower if he increases his lifestyle.

boarder42

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #9 on: March 30, 2016, 11:31:29 AM »
confused as to how you're 17 years away as a young engineer in houston saving what i thought was half your income?

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Pete gives 17 years as the FI for 50% savings.  It will be faster if he gets raises or has savings. It will be slower if he increases his lifestyle.

yes assuming you stick exactly to 50% savings rates but i think he is above it if i remember correctly. he lives with his parents still.

robartsd

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #10 on: March 30, 2016, 11:46:39 AM »
Remember that your money can work harder than you can. Making sacrifices now that you're not willing to make forever to increase your current savings rate can make reaching FI earlier because the earlier you save the more opportunity for the investments to grow. Someone mentioned you live with parents - I can't imagine that that is your long term plan, but investing the savings will let you reach your long term goals sooner.

Runrooster

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #11 on: March 30, 2016, 04:29:22 PM »
confused as to how you're 17 years away as a young engineer in houston saving what i thought was half your income?

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Pete gives 17 years as the FI for 50% savings.  It will be faster if he gets raises or has savings. It will be slower if he increases his lifestyle.

yes assuming you stick exactly to 50% savings rates but i think he is above it if i remember correctly. he lives with his parents still.

Yeah, I was thinking that.  The 17 year number assumes he keeps his current lifestyle in re.  Free rent is not generally available in perpetuity.  If he's saving 50% and will have to pay 20% in rent at retirement then he will need (.50+.20)/.5*17 years=24.  In reality he'll probably get some raises and move out before then.  Since housing is most peoples biggest budget item, I think his savings rate will go down when this happens.  I suspect his parents are subtly covering other expenses, including doing his cooking.
« Last Edit: March 30, 2016, 04:36:52 PM by Runrooster »

Emergo

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #12 on: March 30, 2016, 05:07:45 PM »
confused as to how you're 17 years away as a young engineer in houston saving what i thought was half your income?

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Pete gives 17 years as the FI for 50% savings.  It will be faster if he gets raises or has savings. It will be slower if he increases his lifestyle.

yes assuming you stick exactly to 50% savings rates but i think he is above it if i remember correctly. he lives with his parents still.

I'm exactly at 50%, not sure i can do more than that.

Runrooster: yikes, 24? Thats barely retiring early. Ugh...

boarder42

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #13 on: March 30, 2016, 06:04:15 PM »
confused as to how you're 17 years away as a young engineer in houston saving what i thought was half your income?

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Pete gives 17 years as the FI for 50% savings.  It will be faster if he gets raises or has savings. It will be slower if he increases his lifestyle.

yes assuming you stick exactly to 50% savings rates but i think he is above it if i remember correctly. he lives with his parents still.

I'm exactly at 50%, not sure i can do more than that.

Runrooster: yikes, 24? Thats barely retiring early. Ugh...

How old are you. You're a first year engineer right. Your pay will be on an exponential curve. If it isn't you're in Houston go interview.

Runrooster

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #14 on: March 30, 2016, 07:25:13 PM »
If I read it right, he is 27, tithes, and the 50% is gross not net.  That is, he saves 33k (18+5.5+9.6) and earns 64-5-6.4=53.  33/53=61.5% and is a respectable 12.5 years from retirement! That's age 40.

In terms of the tithe, since you are tithing the full income right now, I assume you do not tithe again in retirement.  Thus, I treat it like tax.

Second, yes you are understating long term expenses, but I would expect your income to increase dramatically even double in the next 5-8 years. You should be able to offset rent and mortgage costs with those raises, especially at the 17 year horizon.

Edited to add: the savings/net income is a rule of thumb, but the more important number is expenses in retirement.  The rule of thumb assumes your expenses will stay the same.  Since most retirees have lower transportation, clothing,restaurants but increased medical, this is reasonable.  In your case, savings/(savings plus expenses) would look like 33/(33+30) if I include a rent allowance of 10k, which is back to your 50%.  I didn't really follow the issue with your father, though.  Also, marriage or kids will change things dramatically.
« Last Edit: March 30, 2016, 07:49:50 PM by Runrooster »

Emergo

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Re: What is the FI part of FIRE? Can someone draw an illustration?
« Reply #15 on: March 30, 2016, 09:25:29 PM »
It's more like 18+5.5+4.9 which is 50% savings rate, where im at right now.

And yeah, marriage and kids will change things. Hopefully my future wife will be accepting of my lifestyle.