- Financial independence is nothing more
than doing something everyone else
is hopefully planning doing, which is retiring,
but speeding up the process.
To do that, there are sacrifices that need to be made today
to achieve this type of lifestyle.
You cannot spend money based on your current income
and you'll have to invest more than the average person.
You have to give more today
if you want to be able to take at an age
that is younger than what is currently considered
the full retirement age.
In this video, I'm gonna break down the four styles
of financial independence, retire early,
to give you an idea of what your life could look like
depending on which one you're aiming for.
To help explain these four types
of financial Independence, retire early,
we're gonna use three high school buddies
named Larry, Barry, and Jerry.
We're also going to talk about their friend Nancy as well
because I want you to see what kind of lifestyle
that she is living.
And to be honest with you, I think that I actually
fell in love with Nancy while I was making her story up
for this video (laughs).
I really like her.
Hey I'm Jarrad with an A and on this channel,
we talk about all things p-p-personal finance, investing
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Let's set some ground rules before diving in.
Just to be clear, the normal line of thinking is that
as long you have 25 to 30 times the amount that
you wanna live on every year, than you're good to go.
That will allow you to safely withdraw four percent
from your investments for at least 30 years.
This is said to be true no matter which one of these
four categories that you fall into.
I'm going to attempt to throw specific numbers
into each of these four situations
just to give you some guidelines.
Everyone's situation is going to be different
depending on many different factors,
but I at least wanted to take a stab at outlining everything
to help you think through this enormous world
of financial independence, retire early.
As I go through each one, let me know in the comments
down below which type of fire appeals to you the most?
First up, we have Larry who is pursuing Lean Fire.
I'd consider this the riskiest of them all
but there's still people who are good
with this type of lifestyle
and Larry is one of those people.
Someone who is living that Lean Fire lifestyle
looks like this.
They earn 40 thousand dollars or less per year
through income generated from their investments.
Now this could be anything from withdrawing from
an investment account,
a business that passively earns an income.
Something like cash flow from real estate
or anything like that.
Whatever it is needs to be as stable as possible
due to the small room for error that's already
baked into this lifestyle.
Ideally someone who is Lean Fire wouldn't have any debt.
The more debt that they have at this stage,
the riskier life becomes in general.
Missing a debt payment due to an unforeseen circumstance
can send someone like Larry right back to work
which is what we are trying to avoid
with financial independence and early retirement.
Living on 40 thousand dollars per year without debt
is easier to do than it is living on 40 thousand dollars
per year with debt.
Larry needs to watch his expenses since he's trying to
live off such a low amount so he really needs
to embrace a do-it-yourself mentality.
If the car needs to be fixed, then Larry isn't dishing out
the money to take it to a shop down the street.
When things need to be done around the house,
then Larry will be getting his hands very dirty.
Luckily, he has a ton of time on his hands.
So he'll most likely have to spend money
on the materials and spend his time working on that project.
Frugality will have to be Larry's new middle name.
Things will have to be given up or altered
to cut expenses wherever possible.
Now this could look something like
being a one car family, riding a bike,
walking or using public transportation.
Hopefully that bus he's taking will allow him
to carry on a few pieces of drywall from Lowes
since the dog accidentally fell into the wall
and left a big old hole that now needs repair.
Larry is gonna become a regular at the local bar
to get his frugal little fingers on that
free happy hour food a couple of nights a week.
He's also probably gonna be spending a day or two per week
walking the aisles of the local grocery store
to fill up on those free samples that they have.
Please don't get annoyed with Larry when you invite him
over to an event at your place and he leaves
with pockets filled up with dinner rolls
and various cheeses.
To keep general expenses low, someone pursuing Lean Fire
will have to live in a very low cost of living city.
Think of states like the Midwest to find
cheaper places to live.
Another option could be to do some sort of geo arbitrage.
This is where you would move to a country
that is less expense than the cheapest city
in the United States.
Larry is gonna have to think about these types
of sacrifices to maintain his lifestyle.
Moving out of the country sounds more ideal to me
if I was pursuing Lean Fire.
Yes, you can have children while being Lean Fire,
but it's going to be really tight for obvious reasons.
The US Department of Agriculture reported back in 2017
that the cost of raising one child from birth to 17
is about 233 thousand dollars.
That's a lot of donuts.
We all know that kids are expensive
and I'm not knocking having children at all
but I think we can admit that they are another expense
that you have to realistically account for.
For this reason, you may not be able to be
financially independent or you might just
not be able to have kids at all.
Yes, I know that there are many ways to lower the cost
of your little monsters, and if you have some ideas,
then don't let that stop you.
Somehow my mom was able to raise four kids on her own.
Don't get me wrong, we were pretty effing poor,
like living on food stamps, welfare
and the recipients of canned food drives.
While we didn't even have a quarter of everything
we wanted, we all managed to grow up to be
pretty productive humans in society.
That obviously had more to do with how my mom raised us
and less to do with the amount of money
she was able to spend on us.
So shout out to my mom.
She's the best.
Healthcare is an issue looming over the head
of someone who is Lean Fire.
This expense is insanely expensive in the United States,
It is absolutely nuts at how much we are charged every year.
And most of us don't even realize it
because our employer covers all of the costs.
To get around this, you'd for sure have to move
to a different country where you can get medical issues
handled by lower cost doctors.
Now you could also think about traveling
to a different country for medical procedures
but since you're already living on such a small amount,
this probably isn't as feasible as it sounds.
Another option would be to have your partner continue
to work so you can hop on their medical plan.
Now hopefully, hopefully, you're good at selling
because it might take a lot of convincing
to talk your significant other into going to work
while you party all day.
I'm just kidding.
Your partner might actually enjoy their job
so I can see this working out depending on your situation.
But they would still have to be okay with that.
Before I move on, let me point out
that the place that you live can drastically change
the type of Fire category you fall into.
It you're Larry, pulling in 40 thousand dollars per year,
but you live in an extremely low cost of living place,
like out of the country, then you could potentially
be living one of the Fire lifestyles
we're about to talk about.
Which is of course a higher level of Fire.
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Barry is like one of those hipsters
who works at a coffee shop.
He's usually a very pleasant individual.
But it's pretty obvious when Mr Barry hasn't had
his first cup of coffee that day
because he'll get a little bit upset when you ask him
to explain to you what in the world is a TimTam Slam.
I'm just kidding for all my hipsters
and coffee Baristas out there.
Barry's a sweetheart.
Someone who is into the Barista Fire lifestyle
looks like this.
Income ranges between 41 thousand and 70 thousand dollars
per year which isn't too bad,
doesn't seem too bad on the surface.
Now on the higher end, to simplify this example.
That means that you'd need about one point seven five
million dollars for a four percent per year withdrawal rate
to hit that 70 thousand dollars per year.
Barry is feeling a little bit more confident than Larry is.
When it comes to debt, it depends on where you fall
within this range.
Having zero debt would be the best case scenario,
but having a little bit left on your mortgage
might be okay here.
A lot of it's going to depend on
what we're about the talk about next.
Barry has enough money to cover his housing, food,
transportation and other regular day to day expenses.
Now depending on how much debt he has,
he probably has some money left over every single month.
The only thing that's a little questionable is
how Barry is going to pay for healthcare.
Shelling out a few hundred dollars every month
could really put a squeeze on his finances overall.
Now because of this, he'd have to work part time
at a place that offers medical benefits.
This is where the Barista word comes into play
with Barista Fire.
The most well known company that offers medical plans
to part time employees is Starbucks.
There are many other companies that offer
this sort of perk to their employees
like Chipotle, Costco, Staples, Lowes,
and Home Depot are the ones that I know of
off the top of my head.
The whole working part time thing might not be that bad
of a gig at all.
Less stress, and less responsibility
than a full time job.
Barry would have to fill the hours of his week
doing something, so he could consider this
20 hours per week kind of like his social time
where he can get paid and have access
to a decent health plan.
There's still the potential that one day
those medical plans could be cut.
In 2019, Whole Foods, who was purchased by Amazon,
announced that they would be cutting medical benefits
to 1,900 of their part time employees.
I'm not mentioning this it incite any fear,
but you have to keep in mind that this outcome
is a possibility if you're relying on an employer
to cover your health plan while working part time.
Just like Lean Fire, you could also have a significant other
that continues to work after you leave your job
so that's always an option.
Even though it's kinda tight,
Barista Fire makes it a little easier
for Barry to have children if he wants them.
Since there's a little extra income around,
he could make it work if we really had to.
Now there probably wouldn't be enough money left over
every month to set aside for their college,
but that's just a sacrifice that you'll have to make
with this type of lifestyle.
Frugality is something Barry is still gonna have
to keep in mind.
Luckily he's spent years living frugally while saving up
to reach financial independence, retire early,
so this should be a non issue.
He'd be able to upgrade a little bit, not a ton,
and move to a low to mid cost of living state.
I wouldn't say that he should really consider moving
out of the country, but if he wanted to,
then his money would go a lot further than it would
here in the United States.
Barry could even think about moving overseas
for a short period of time.
then plan on moving back to the states
at some point in the future.
If he's pulling less from his investments
since he's living in a lower cost country,
then realistically his money should be able
to grow a little bit faster.
And then once he decided to come back to the United States,
who knows, he might at that point be bumped up
into this next Fire lifestyle
that we're about the talk about.
Larry, Barry, and Jerry have a smart, beautiful
funny friend named Nancy.
Now Nancy has decided to go the Normal Fire route.
She kind of laughs at these three guys because
they are all over the spectrum
of financial independence, retire early.
Now Nancy has decided that she doesn't
need a lot to be happy,
but she also doesn't wanna have to make a ton of sacrifices.
Here's what Nancy's lifestyle looks like.
Nancy's income in her financial independence years is
between about 70 thousand and 110 thousand dollars per year.
That's a pretty decent amount for the average lifestyle
that she wants to lead.
Nancy never wants to have to say no to spending
a little extra cash on a fun experience,
like heading out to Colorado for a week
to enjoy some outdoor activities with her girlfriends.
But she's also very conscious about how buying things
just to buy things will not make her happy.
70 to 110 thousand dollars per year makes her
very self sustainable.
She technically wouldn't have to work for money
if she didn't want to
and could most likely afford the monthly medical costs
that we all face.
Nancy actually doesn't have any debt,
but if she wanted to sell her current home
to buy another house and take out a small mortgage
in the process, then she wouldn't sweat it.
Since has a little extra cash lying around every month,
she could even purchase a rental property
to turn it into a project that could pass the time
and also make her some money over the long run.
Nancy could d-d-definitely have
at least one child for sure.
She might have to make a few sacrifices
since more of her money is going to raising a kid,
but once he or she is grown,
then Nancy will have some extra cash in her pockets.
We already know that Nancy is a really level-headed and
smart person, so she'd probably have her kids working
as early as possible to teach them the importance
of hard work and how to manage their own money.
This will of course cost her less money because the kids
will be paying for more things on their own.
Isn't Nancy so smart?
Frugality is a part of Nancy's DNA
after pursuing Fire for years,
but she prefers to be a little bit
more mindful of her spending.
She's not gonna be trying to catch rainwater
to drink for the week.
And she's definitely not gonna be one of these people
that are heading to the local grocery store
to eat food samples for dinner.
Oh and she also doesn't wanna have to use coupons
if she doesn't want to.
When it comes to where she lives, Nancy can't realistically
afford to live in a high cost of living area.
She could probably get away with it,
but there wouldn't be much money
left over every single month.
Working on the side is an option to make this happen,
but Nancy isn't willing to give up her laid back lifestyle
to be closer to the beach or a big city like New York.
Like I said, I think I'm in love with Nancy,
and I just made her up.
Now, we need to talk about their friend, Jerry.
Sometimes he refers to himself as J-man, Big J,
Jer-dog and he even used to ask his girlfriends
to call him, wait for it, Jer-Bear.
Jerry used to be a weirdo.
Jerry has chosen to embrace that Fat Fire lifestyle
because he enjoys living life to the max.
He wants to be able to do all of the things
without having to think twice about it.
This is what a Fat Fire lifestyle would look like.
Jerry's income would be anything above
about 110 thousand dollars per year.
For example, if he wanted to be able to safely withdraw
160 thousand dollars per year, then he would need
about four million dollars in investments.
For most people's standards, one or even two people
living off of 160 thousand dollars per year
is a pretty healthy lifestyle.
It would even be pretty good for a family as well.
If you couldn't tell, Jerry is more comfortable
than all three of his friends
and I don't think there's anything wrong with that either.
He saved up enough to be able to live
this lifestyle that he wants.
With Fat Fire, you can most definitely handle carrying debt.
Yes you can absolutely get crazy and overspend
where you're still poor on 160 thousand dollars
but I'm assuming that if you went through this process
of financial independence, retire early,
then you're above average when it comes to
doing smart things with your money.
If Jerry didn't have any debt,
then he would feel insanely wealthy.
I mean, not Jeff Bezos wealthy, because anyone
could easily blow through any amount of income
that they have pretty easily,
but just enough to feel like you can handle
anything that comes your way.
Having children on a Fat Fire income
is extremely attainable.
someone who wants this lifestyle is willing
to pay some money to send their kids to
we'll say a private school, and even set money aside
for their future education as well.
Fat Fire is the goal so frugality isn't something
that jerry wants to have to worry about.
He wanted to be able to spend money on convenience
so he didn't have to feel like he was pinching pennies
to stretch his dollar just a little bit further.
As your income increases, the more likely it is
that you can live anywhere in the country.
Fat Fire affords you the ability to live on the coasts
of California or even move to New York City.
Money for a home, it's a non-issue.
Jerry could quite literally live anywhere in the world
with his income.
Nowhere is off limits.
The cost of healthcare isn't a problem either.
Someone who is Fat Fire can easily afford
the higher tiered health coverage
for themselves and their family.
There's a ton of major perks to pursuing Fat Fire.
For example, Jerry is able to travel four or five times more
than the average person can.
He also has the extra money to pay for
Larry, Barry and Nancy if he decides that he wants to take
them on a friendcation.
Some people might call this the snobby version of Fire,
but I disagree.
If you're one of these people, shut up and go away.
I think this is great if people can get to this level.
At least they're being very open and honest
with the type of lifestyle that they wanna live.
Let me know in the comments below
what your thoughts are on these four types
of financial independence, retire early.
I'd love to hear from you.
Check out the top video on different ways to build
at least a one million dollar portfolio
and the bottom one on how to save at least
40 thousand dollars per year.
In the description, I have playlists
and resources to help with all of your personal finance
and investing needs as well as a copy
of my free investing platform guide.
Make sure to hulksmash that thumbs up button.
I'll see ya in the next one friends.
Adios.