today we're talking about one of the most divisive topics when it comes to personal finance and that
is the fire movement for every article and video you see talking about how incredible fire is and
how you can retire in your 30s and 40s you'll see a video of an article talking about how
it's unrealistic or why they stopped following the fire movement today we're going to talk about the
fire movement as a whole and break it down into three main parts part one we're going to talk
about what you'll need to figure out when you're going to retire we're going to talk about some of
the numbers and some of the goals you'll need to reach for the fire movement to be realistic for
you part two we're going to talk about some of the things that you need to consider these are
the variables that could change your situation significantly by the time you decide to retire
and then part three I'm going to finish off giving my thoughts on the fire movement as a whole this
is where I'm going to give my thoughts on is this realistic who can benefit from it and just kind
of my thoughts of the people that are involved in the fire movement so let me know in the comments
down below if you've ever considered using the fire movement and what are some of the things
that really Drew you in or pushed you away from it as a whole so for those of you who don't know the
fire movement stands for financial Independence retire early and it's this idea of aggressively
saving now and hopefully being able to retire in the next 10 years and your 30s and 40s and
it's really exciting for people that are in a job that they don't love or just the idea that
they don't want to work forever when you look at some of the numbers 30 of people absolutely hate
their job and they don't feel fulfilled by it and I don't think that's surprising based off of some
of the statistics and kind of the overall feelings that we've been seeing especially as 2020 push
people from working from home and now as people are getting pushed back to working in the office
you're seeing a lot of unhappiness when it comes to jobs and in the fire movement there's a bunch
of different variations depending on how you want to live your life you have the traditional fire
movement which is the idea of saving 50 of your income for the next 10 years to hopefully retire
early you have the lean fire movement which is the idea of living incredibly frugally so that
your expenses are not going to need to be as much and as a result your Investments are not
going to be as large as it would be for some of the traditional or some of the the fat fire
movements and then you have what I think is the most interesting which is the Barista fire which
is the idea of working part-time the Barista comes from a lot of people talking about working
at Starbucks because of the flexibility and the health benefits but it's the idea of being more
flexible with your schedule working when you want to but still having some incomes you don't need
to entirely rely on your Investments to live for the next 40 plus years all right let's talk about
part one which is going to be what do you need to retire retirement is something that a lot
of people haven't really thought of people have retirement accounts they throw money into it they
invest into it but they haven't really figured out how much money that they're going to actually
need to retire the general rules that people use looking in the fire movement is the four percent
withdrawal rule this is the idea that every year to successfully be able to retire you're going to
be removing at maximum four percent of your total Investments the whole idea is that if you're using
a number that's above that you're going to be draining your your cash reserves too fast so by
the time you get into your 60s 70s and 80s you're not going to have enough money to survive on so
it's this healthy withdrawal rate which is the four percent that most people tend to use as the
you know the sweet spot using this four percent withdrawal rate it comes with the idea that you'll
need to have 25 times your annual expenses is to be able to retire comfortably and so looking at
my current expenses and assuming I spend around 70 percent of my income we'll call that around Thirty
one thousand dollars a year of my annual expenses times 25 that means I would need just under 790
000 to retire comfortably so when I use this rule it's assumed that you're going to be retired for
30 years which the fire movement the whole idea is retire early so you're going to need
more money than that when you look at some of the retirement calculators assuming that I'm saving 25
of my income which I think is a great number for people to be targeting and saving it you know for
the next 40 years I'm going to be able to retire comfortably and that's the goal but if you change
it to retiring at 45 I'm not even going to be close to where I'm going to need so how are we
going to move some of the numbers around so that we can retire early growing an investing portfolio
has three major factors and some of them are going to be stuff the weekend effect and some of them
we are not going to be able to touch one of the most important things when it comes to investing
is time the longer you have your money sitting in the market the more flexibility and more growth
opportunities that you're going to be able to a half this is why if you go into a a calculator
for compounding growth the difference between 40 years and 45 years is pretty significant Because
by the time you're getting up to your 45th 46 years that money is much larger and it is
increasing at a significant rate it's the idea of the dividend snowball that while it starts slow
the longer and longer it goes it's going to be picking up steam and by the time you're in your
40s 50s and 60s you're making tens of thousands maybe even hundreds of thousands of dollars so
that you're able to increase your investing portfolio significantly so for this situation
time is not going to be on our side so we're not going to be able to use that to our benefit next
up we have our rate of returns the rule of 72 is a general rule that you can use to see how long
it's going to take for you to double your money using normal Investments so the ways you use it is
you put 72 over your percentage returns and that gives you approximately how many years it's going
to take to double your money so if you're trying to retire early you might think okay we're just
going to try to maximize our returns in the short term so that we can retire as soon as possible
yeah and yeah let's not do that the whole reason that this is a bad idea is that the larger returns
that you're going for the higher risks that you're taking on and in a situation like this where we're
trying to retire in the next 10 years a mistake or the stock market going down significantly is going
to put you back so far especially considering the amount of returns that you would need to get back
to where you were I don't think that the risk of taking on this additional potential of making 15
as a compared to 10 is going to be worth it in the long term when we're in the long term we're
able to use a long-term return average of 10 percent because this is an average it's going
to on average go back to this number but in the next 10 years that might not be an average if we
have a long-term recession and things are tough for the next two or three years we may not hit
our investment goals of 10 a year so you really need to kind of assume kind of conservative just
so that by the time we get 10 years from now and you're trying to retire that you didn't
drastically overestimate how much money you're going to be making in the stock market and so
we're not going to be touching our rate of return for for these equations so what do we have on our
side the two things that we have remaining are our income and our savings rate and that
is the biggest focus of the fire movement most people when talking about the fire movement is
that you're going to need to save at least 50 percent of your income and try to take on some
additional projects whether it be side hustles whether it be working additional hours at your
job or picking up a side job it's the idea of using your time now to benefit significantly
on the long run the bigger shovel that you can have to dig your investment hole you're trying
to make this big hole full of money the bigger shovel that you can have which is by increasing
your income is going to be the biggest way that you're able to retire early and so you can take
on these additional jobs you can save as much as possible some people talk about The Frugal
fire movement which is the idea of lowering your expenses so that you're not going to need as much
to retire during this time people are talking about hunkering down not spending as much money
not going on vacations just to make sure that you can increase your savings rate as much as possible
I talk about my goal savings rate as being 25 people are talking about 50 to 75 as being the
goal to make this actually work and by increasing your income whether it be at your job picking
up side hustles is going to be the best way to actually make this a realistic option all right
so we talked about what you're going to need to retire let's talk about some important variables
that you're going to have to consider to make this go hopefully smoothly the biggest thing that goes
along with retiring early is that there's so many variables that can affect your actual retirement
the idea of retiring at a normal age means that you're going to have around 30 years as
the expected life expectancy goes up we're going to need more and more money so the earlier that
you retire the more money and the more years that you're going to need to be able to live off of and
so as you know technology improves and Healthcare improves you might need additional five plus
years of money to live off of so that's something important to think of but right now the thing that
you talk about that you see in every news article when it comes to the market is inflation inflation
is the rate that your buying power decreases as that number increases your buying power goes down
and so a lot of the financial calculators that you use for the fire movement use three percent
as the general rule of inflation right now it's sitting at what 7.1 percent for the past year so
that means that this continues for a long time your money is going to be less valuable than it
was you know a year ago so this is something that you're going to need to take into account so if
inflation stays as high you're going to need more money because your money is not going to be as
valuable you know 10 15 20 years down the line as you may have expected but market conditions
are a huge player when it comes to retiring early because for someone like myself that is hoping to
retire at a normal age of around 65. if the market goes down for the next one or two years I'm pretty
excited I'm buying aggressively because these are stocks I'm hoping to hold for the next 40 50 60
years that's fantastic if you're trying to retire in the next 10 years these market conditions can
really hamper how quickly you're able to retire if things stay this low for the next two years
and you're not able to get that hopeful 10 of your returns you're going to be really far behind your
investing goals so the market conditions play a huge factor in not only how long it's going to
take for you to hit your goals to be able to retire but if marketing conditions slide you
know in the next 10 years and we have a really long recession that might mean that you have to
go back into the workforce so the longer you're retired for the more risk there is that you're
going to have to go back to work because market conditions inflation your life situation changes
to the point where you can no longer afford it to not work and the final thing I wanted to talk
about that you'll need to consider is where you put your funds for someone like myself who is plan
to retire at a normal age of around 65 raw funds are incredibly attractive to me right now because
this allows my money to grow tax-free for the next 40 years so when I take it out I could have you
know sixty thousand dollars worth of contributions that result in you know a million dollars and that
million dollars is not going to be taxed but if you're going to be retiring at 35 and you're need
gonna need to draw four percent of that money annually there are penalties associated with
taking money out of a retirement account you have stuff where the earliest you can touch it without
being hit with a penalty is 59 and a half and then you have the required minimum distributions at 72.
72 is a long way away when you're trying to retire at 35 so you're going to need to consider where
you're going to put your money and then the tax implications that are going to go along with that
if you have all of your money in a traditional brokerage account you're the flexibility of being
able to access it whenever you want but that also means that if uh you know you have to take your
money out you're gonna have to pay taxes on it and that sucks especially when you're trying to
plan for the future 40 Years of paying taxes on your Investments that's a little tough so
you might need to invest more than you actually think because you're actually going to have a tax
bill and it's very important to probably talk to a tax professional to try to plan this out in a way
that's going to minimize your tax bill for the long term all right let's finish up this video
with part three talking about my thoughts on the fire movement is it actually possible to do yeah
I'll say if you really wanted to do this you could absolutely do this we've seen people make
these changes major life changes like living in a van to try to lower their expenses and increase
flexibility if that's something that you want to do that's fantastic there is the ability to save
for the next 10 15 years and be able to retire whenever you want but I do think there are a lot
of negatives associated with it especially with the psychology that goes along with it
back when I was in college I was so focused on trying to invest and save for the future that I
really did not have as good of a time as I should have had so I'm worried that people are going to
get into this movement spend all of their time and effort trying to save as much money as possible
and not be able to actually enjoy their their younger years I'm sure people in their 50s and
60s really wish that they were able to go back to their 20s and 30s and be able to experience
a lot of the positive opportunities that you have as being a young person so you have the ability
to use all this time to save for the future but you also are trying to take advantage of it and
I think personally for myself if I was trying to save as much as possible I would not be in a great
spot mentally because I'm the type of person that obsesses over saving every dollar if possible and
if I'm going out you know I'm spending an extra ten dollars on gas instead of driving an extra
20 minutes to find a cheaper gas station I might sit there and stress over that and I think that
it puts you into a spot where you're so focused on saving as much as possible that it's going
to be negatively impacting your mental health next we're going to talk about health insurance
in the United States health insurance for the most part is paid for by your employer and it's
tied to your employment and if you're trying to retire early you're gonna have to be paying for
your insurance sure there are some social programs where if your income is under a certain amount you
may be able to get it significantly paid for by the government but some of these numbers that I
found what percentage of health insurance is paid by employers employees pay on average
around 17 percent of their self health insurance so if you're retiring early you're gonna have
to figure out your health insurance and that is a huge annual payment of uh close to eight thousand
dollars per year and that's something you're going to need to take into account unless you're going
to do the Barista fire which I think is probably the most realistic option for most people now
let's talk about wages of young people here is a graph that shows the wages of young college grads
have been falling since 2000 when I came out of college I was unable to find a job yes it was in
2020 and no one was hiring but by the time I did end up finding a job I was working for 15 an hour
which is underneath the graph which on average it says is 19.15 for a man this goes along with
wages that are pretty uh stagnant here's a graph that shows wage growth the very high wage people
are increasing their wages significantly in the middle class which are most likely the people
that are going to be excited about something like a fire movement have been relatively flat over the
past 20 years then we look at the Historical savings rate for Americans you can see this
Spike during the pandemic as people were staying home and not spending money on some of the things
that they were traditionally doing like going out to eat entertainment travel was only up to 35 and
considering you need to get up to 50 we've never seen the historical savings rate that high and
now with the potential recession and the market conditions we're seeing a savings rate of 2.3
percent which is really tough so when you look at the overall market conditions and you see how many
people are struggling paying their bills doesn't make me super hopeful for people trying to use the
fire movement but it is possible that some people out there will be able to make it work and then
one of the other things that really jumps out to me has to do with with housing housing is probably
the biggest expense that you're ever going to have and when you look at this graph that I'll put up
right now that shows the percentage of income that people are paying to housing you can see
that more than 20 percent are spending more than 50 percent of their income on housing when you're
hoping to save 50 of your income that is not a great number so housing has really taken off in
the total number of dollars that it costs to live and that's really going to hamper people for the
long term are people in the fire movement going to be able to buy a house which has historically
been the best way for Americans to build wealth probably not going to be able to save as much
to do that because they need that money live off of so these are just some of the things that I'm
worried about when people discuss going into the fire movement is it possible to do absolutely I
would love to be able to do it I just don't think it's realistic I think it would increase my daily
stress when it comes to my finances which are actually already pretty high if we're being honest
and it just worries me that people are putting themselves in a situation where they've put
their whole you know 20s and 30s into saving as much as possible they're missing out on a lot of
opportunities and even still they may be short when it comes to their savings goals so those
are just my thoughts overall let me know if you think of the fire movement is actually something
that you've considered and let me know if you think you would regret leaving the workforce
early because it really limits some the wealth building opportunities that you have out there
my name is Andy if you'd like to see more videos from me I'll put some on the screen right now and
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