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Are You On FIRE?

November 25, 2018

It may sound like a crazy question, are you on FIRE? FIRE stands for Financial Independence, Retire Early. It has slowly over the last 10 years or so been making its way into the mainstream media. It is the thought or idea or lifestyle that you can save a bunch of money early in your career and not HAVE TO work.

Me being an almost 50 year old, the idea sounds pretty good. There have been some pretty big players in the field of information  to help people along with their FIRE journey. There is Mr. Money Mustache, Afford Anything, The Mad FIentist and a bunch of others.

I have read lots of their blog posts myself. Tons of great information. But what is it really about anyway. How can these guys retire completely after only working 10 or 15 years??

The above people will tell you that you have to live on half of your income. Save and/or invest a large part of the other half. Most people will tell you that they can NOT live on the 60k to 80k that they make now and still expect to have a nice house in the suburbs, a nice car and go out to eat 10 or so times a week AND still save 50% of their income.

I would have to agree. You can not do all of that and still save 50%. FIRE is not for everyone. It is doing what most people do from age 25 to 65 years old(40years) in 10 or 15 years. What is involved is being frugal with that BIG goal of NOT having to work for “the man” anymore.

Some people will make this such a priority that they can live well within their means so that they can be free of the cubicle life. My journey really started when I met my wife, Gloria. We were both self employed and did not want to work for someone. Both of us realized that to be able to get to a happy retirement we would have to put away more money.

To be able to save more we would have to make a little more money or spend a little less. There are really no other ways to have extra money. You either make more or spend less.

We opted to spend less. After we had been married for a few years we decided to cut cable and home phone. That saved about $100 per month. That does not sound like a bunch of money we saved. It wasn’t. I wish that I could tell you that we saved that $100 per month and invested it at 18% per year in a S&P index fund and now we have $5mil in the bank. Nope.

What it did was to get us to start thinking about everything else that we do and how we spend our money on an everyday basis. We realized that staring at the idiot box for several hours everyday was keeping us from doing other things that could help us in our journey.

When we did not have to get in front of the TV by 7pm to 11pm to watch everything that was on HGTV and AMC and all the other channels that keep you locked in for hours at a time we were able to live life. We actually cooked meals at home and continue to do so. We love cooking together. It is always more healthy because we choose the ingredients we use.

For some years now, we use avocado oil to cook with instead of the hydrogenated stuff at restaurants. We tend to eat smaller meals when we cook them at home also. We usually make extra so that we can have lunch tomorrow. Eating meals out seems to have been the biggest expense that we had. Over time it has decreased substantially.

Working together and cooperation is something that is always key whether it be in a relationship or watching your retirement grow. What we decided some time back was that if we ate at home, I would cook. If we went out to eat, she would pay. What a great compromise!!

I love to cook and she hates it. She loves to go out and I hate to pay for it. Talk about win-win. When you start working together like this, there is no telling what you can do. Both people need to be a little flexible and willing to try new things. If you both are in line with each other you can really make some headway to fulfilling your goals.

All of these little changes and a bunch more have gotten us to where we tend to not go out and spend so much money anymore. We tend to spend a whole lot less on frivolous everyday things. If we really want something or have a craving for something, we do it. We will not deny ourselves anything.

The thing is that when you are happy in your relationship, you are eating well, life is good, you tend NOT to have all of these cravings as often. You are already fulfilled with your life. I am not saying that we dont fight. We have plenty of disagreements. We are able to rationally discuss things and make decisions together though.

Just a few nights ago we saw a commercial for Starbucks Peppermint Mocha. At almost 10pm I told my wife, lets go get one. She laughed and said, “Yes we should”. Of course she thought I was kidding, because it is so NOT me. I got dressed which made her realize that I was serious. She reluctantly got dressed and we had our Peppermint Mocha outside in the 45degree weather.

It was something spontaneous, exciting and kinda cold. But it was fun. We laughed at being the only idiots outside. But as we sat there, we looked back at our Germany trip where we sat at a bunch of outside eateries with so many other people. It was usually about 55degrees outside, but everyone seemed to be happy to be outside. I guess it is your perspective of what makes for good weather.

We have been living a little lean these last 10 years or so to be able to have a bigger nest egg. As I mentioned before, we do not deny ourselves but we are more selective in what we indulge ourselves with. We have been able to purchase real estate assets that were either underperforming or in need of some value-add component.

For me, I knew that I never wanted to work 70-80 hours a week like I did for Luby’s Cafeteria. That was the absolute worst in every way you can think. We were already spending less, but how could I make more money.

The key was to find those underperforming and/or value add investments. Underperforming were the notes that were about to get to foreclosure and the owners of the notes needed the money really bad.

The value add were the properties that needed a bunch of repairs and the owners could not do anything because they did not have the cash or did not want to do repairs.

Finding and buying these types of assets are the way to create a larger income. I purchased a few notes that were not performing. They were bought at a steep discount. Some work was done to get the homeowners back on track and paying on time. This made the notes substantially worth more and an increase of value for the note.

If you have a goal of having $1million net worth in the next 10 years you do not have to neccessarily put $1mil away in the savings account. You might find a great deal on a 20 unit apartment. It will be run down and probably only have 12 or 13 tenants.

You can go in and buy it for probably half its value. Find some friends that have some cash so that you can syndicate the deal. You keep 30% of the deal without putting any cash of your own. Management of the deal and of the property manager would be yours. Get it turned around and sold in 4 or 5 years and you could net maybe 150k for yourself.

With a deal like that every year or two and you will be on your way to retirement within no time. It is this type of deal with 10 units, 20 units or a note that is not performing that I get performing that will push you to bigger income without having to work for the man.

I have seen people over time build a fortune in rental properties. I have seen it first hand where someone will buy a great deal. It generates $300 of cash flow per month. They find another one next year and maybe several other the next year. With all of these deals bringing in $200 or $300 per month, they total an extra $2k per month.

These folks dont go through lifestyle inflation. They dont NEED a bigger, newer, more expensive SUV. They dont NEED to go out to eat more often. Concentration on getting the homes paid off is where focus is placed.

Lets say that Mr. X has 8 rentals that bring in $2k per month after the mortgages and repairs are made. He would put that 2k plus any other money that he would normally put in his 401k into the 1st rental. So basically he is paying the mortgage on the first unit AND also paying an extra $2500 towards the monthly payment. This can usually get your rental paid off in less than 5 years.

After you have one paid off, you can put more into paying off the next one. This should allow you to pay off the next one even sooner. Before you know it, you will have 8 units that not only are paid off, but 15 years later they are going to be worth a bunch more.

Real Estate is only one way that you can reach your financial goals. You can find underperforming stocks. You can buy cars at auto auctions or from friends instead of them trading them in. There are lots of ways to create value. The trick is to find something that you like to do and make it rewarding for you.

I have given up most traces of the consumerism lifestyle over the last 10 years since I have been married. Giving up the consumerism was part of my path to get ready to reach FIRE. The other way has been through value purchasing of real estate. I increased my income while decreasing my expenses. What a concept.

Even our house was a discount purchase. It needed plenty of rehab that we are finishing up. After it is done we should have about 50k of equity in the home. In 5 or 6 years when we sell it, we should have paid down the loan to where we will walk away with over $150k at closing.

I must say that I am still not at financial independance 100%. My main focus continues to be my work on marketing so that I can buy more discounted real estate. I am close enough that if for some reason I had to go and look for a job, I could work for minimum wage and not miss a beat with bills or lifestyle.

Could I even work for someone else again? Maybe if I was working for something that I was passionate about. I could work for a non-profit. Working for someone else day in and day out where they are making money off of my work is probably NOT something I could  handle.

Maybe I need to start thinking about working in a volunteer capacity. Perhaps a non-paid board position for my favorite non-profit group. That would be a fulfilling job for me when I reach 100% FIRE or even before.

Good luck and I hope you catch on FIRE!!