🛠️ FIRE Fundamentals
Issue #2 - The building blocks for financial independence
FIRE: Financial Independence Retire Early
The goal of a FIRE approach to personal finance is simple: build a savings and investment portfolio large enough to sustain your desired lifestyle without having to work.
This week’s issue of FIRE BTC will cover the fundamental building blocks of developing your own FIRE strategy.
🤔 What are we after, really?
Before starting any new pursuit, it’s important to understand the why of it all.
When I started my FIRE journey, I had spent over 12 years in Corporate America working for prestigious companies.
Corporate America isn’t all bad. I made decent money, had good benefits, worked with intelligent people, and had some level of interest in my day-to-day work.
But after a while, I started to feel like just a cog in a big wheel, a number in someone else’s spreadsheet. The commute was tiresome, the office environment was stale, and the lack of flexibility in my schedule left a lot to be desired. I felt stuck.
Trapped in a career path I had only partially chosen, I began to realize I never really had a plan. I had let the momentum of previous choices carry me to the present, lacking intentionality in shaping my own future. To some degree, that’s part of my personality. I generally “go with the flow.”
I know I’m not alone in this.
FIRE gave me a way out - not just from work but from a career without direction. It was a path towards real control over my future.
How I stumbled on the first bit of FIRE content escapes me. But what I discovered gave me something to work towards rather than just something to run from. An important mindshift - it’s possible to implement a straightforward, simple plan to create lasting wealth that doesn’t require a radical change in your career or taking extraordinary risk.
The FIRE movement is about taking a fresh perspective and being intentional in crafting that plan for yourself to accelerate the timeline of reaching financial independence, thereby freeing yourself from being dependent on a paycheck. Recognizing this future as an achievable possibility opens the mind to understanding how to make it happen.
“He who has a why to live for can bear almost any how” - Friedrich Nietzsche
🚧 The building blocks of a FIRE plan
There are three ideas that sit at the core of a strong FIRE strategy:
Intentional spending and understanding expenses
Understanding your expenses, both now and what you expect (or want) them to be in the future is the first element to tackle.
People work to fund their lifestyle, which of course comes at a cost. With the goal of your FIRE plan to cover your expenses without working, you need to first understand what those expenses are.
House, cars, groceries, taxes, gym memberships, kids activities, vacations, etc. All of this should be taken into account and understood at a line-item level.
After understanding your current expenses, the next step is to be ruthlessly intentional about which ones are necessary and which ones are wasteful.
If an expense is wasteful, eliminate it immediately! If an expense is necessary, find ways to minimize it.
I’ll explore some tips and tricks on managing expenses in subsequent newsletter issues.
Understanding your expenses and being intentional about them is the first step in your FIRE plan because it will be used to calculate the size of the savings portfolio needed to fund your lifestyle.
Pay yourself first - maximize your savings rate
No matter what you earn, you can always save some of it.
Whether it’s 5%, 10%, 20%, 50%, or more, that proportion of any money earned should be immediately moved to your savings portfolio. If you’ve chosen 10% (which I think is a great initial baseline for most people), your job is to automate this savings process and figure out how to live on the remaining 90%. Revisit the intentional spending exercise to find the right balance.
The FIRE approach starts with living below your means and creating a savings portfolio. Think of yourself as the CEO and CFO for your own personal finance company. Your primary objective is to maximize retained earnings.
While a 10% savings rate is a great place to start, you will accelerate your journey to financial independence by saving more. Any extra value saved today is payment to your future self ten-fold.
Buy and hold good assets
When you’ve got your spending house in order and have set up a system to pay yourself first, you must then decide what to do with those savings.
As most people know, you can’t just hold dollars (or other fiat currency), because doing so will make you poorer, not wealthier. The cost of the goods and services you use every day continually gets more expensive over time due to a combination of monetary debasement and government intervention in the marketplace.
While everyone has a different set of expenses for their particular circumstances and lifestyle, there are categories we all must spend money on that continually get costlier. Here are a few examples: housing, healthcare, and education.
You’ve probably noticed that your cost at the grocery store is much higher than it used to be as well.
Because of this purchasing power erosion, you must store your wealth in something other than fiat currency. Most FIRE practitioners choose the stock market and/or real estate. I choose bitcoin.
Buying good assets allows you to maintain, and even grow, your purchasing power over time. This savings portfolio will be used to sustain your retirement lifestyle, and it needs to grow large enough so that you won’t run out of money when you are no longer working. The earlier you start saving and investing, and the more you add to the pile, the faster this value will compound to reach your FIRE portfolio goal.
🔁 Earn, save, stack, repeat!
You’ll calculate the portfolio value you need to reach based on the expenses you expect to have. The idea is to be directionally correct and conservative. There are a few different ways to think about this calculation, which I’ll explore in a future issue of the newsletter. That said, I still use the 4% rule, despite bitcoin being my primary savings vehicle instead of the stock market.
After settling on your number and starting to execute your plan, you just need to be consistent. Your progress will be slow at first, but after the first few years, you will start to see the effects of compounding.
When you understand your expenses, pay yourself first, and start stacking assets, you’re well on your way to financial independence.
That’s it for this week. Thanks for reading!
💡 Enjoyed this content? Share FIRE BTC with someone who’d love to learn about financial independence and bitcoin!
Until next week,
Trey ✌️
P.S. Did you see the news headline last week about Bank of America’s “glitch”? What you see in your bank account isn’t money, isn’t yours, and isn’t actually there. Bitcoin fixes this.
Enjoying the series so far! Really looking forward to what you might think about a mix of traditional portfolio being a portion and Bitcoin being another portion of the nest egg. Like for example using Bitcoin in place of bonds in a 70/30 portfolio. Keep up the articles!