fire financial Independence retire early those words sound great right well I have some problems with the idea of fire you see who doesn't love the idea of retiring early with complete Financial Freedom it sounds great but is it too good to be true as a best-selling Financial author who's helped millions of people get their financial lives in order here's my honest opinion on fire I'm going to break this video down into three parts I'm going to tell you what fire is the problems with it and then I'm going to recommend what you do instead let's
start with part one what is Fire Imagine one day you woke up in your 30s and you had enough money in your accounts to never work again in other words your Investments were generating more money than your salary was I remember years ago going on TV to talk about my bestselling book I will teach you to be rich before the camera started the anchor and I were talking and they leaned over they congratulated me on my book said oh great job do you have to work anymore and I sat back and I realized I'd never
really put it that way but no I don't have to work anymore and that was a powerful moment it's an example of something called The Crossover point where your Investments earn enough to fund your expenses automatically and this idea was first described by Vicky Robin and Joe Dominguez in their book your money or your life it's an incredibly influential idea in personal finance money makes money and at a certain point your money is just generating so much new money that all of your expenses are covered this is also known as being financially independent and what
can you do when you hit the crossover Point well at a minimum you can do nothing you can choose to work or not cuz after all you could spend the rest of your life spending down your Investments a lot of people call this retiring early together that is financial Independence plus retiring early or fire to break this concept down even further there's lean fire which is people who've decided they can live on a lean amount of money often $30 to $50,000 a year in perpetuity they typically reject materialism they Embrace Simplicity often in an extreme
way they're likely doing fun things like going for walks in the park and bird watching on the other end of the spectrum there is fat fire which is for people who want to live an extravagant life at the highest levels of spending think of flying first class staying at the Four Seasons or am man Resorts putting three kids through private school you ever wonder for example how celebrities can spend $250,000 on a single party that's because their money is earning so much money that they actually have to work to spend it all for example in
2018 Oprah bought a house for $8 million seems outrageously expensive right but keep this in mind her net worth at the time was over $4 billion and if she just conservatively invested that money generating 4% her Investments alone not even counting her salary would generate $160 million that year effectively making the house free to her now that we know what fire is let's break down the problems part two the problems with the fire movement now before we get into some issues here I want to acknowledge the positive things about the fire movement first I got
to say I love the way that the fire Community has raised the question of saving more money fire is a total antidote to Americans lackluster savings rate most Americans stretched to save 10% fire absolutely obliterates that by showing it's possible to save 25 40 even 70% of your income if you get clear about your goals second fire demonstrates how you can take control of your money and live the life you want I love that a lot of people shared that they were initially attracted to fire by a blog post which explained how they could retire
decades earlier than they thought possible that's incredibly powerful and third some fire members have created a really meaningful life for themselves I want everyone to be able to articulate your unique rich life and then to use your money to live it that's what money is for but there are also some problems with the fire movement and I see it a lot the first problem I see is that the fire movement is often obsessed with a number and everything revolves around that a lot of members of the fire movement exhibit classic signs of stress anxiety even
depression thinking that hitting some mythical number in their Spreadsheet will suddenly make them happy and as we know from the tons of conversations I've had on my podcast including all the conversations I've had with people over the last 20 years it won't the way you feel about money is highly uncorrelated to the amount in your bank account more importantly a rich life is not about achieving a number a rich life is one where you wake up you enjoy what you're doing one that has lived intentionally abundantly proactively a rich life is not some destination in
a spreadsheet cell a rich life starts today even if you have debt and it's living a rich life today and an even richer life to tomorrow another problem is that people working towards fire often spend years living in Ultra frugality I'm talking hyper frugality so that one day in this mythical future they can enjoy their money but that's not how people work I've seen this with guests on my podcast Mindy and Carl for example who are actually quite prominent in the fire Community who in their early 50s built an over $4 million Fortune but as
members of the fire Community they still struggle to spend their money that's because when you set the goal of accumulating a number it becomes very difficult to learn how to spend it in other words you can't be ultra Frugal for years and years and then magically flip a switch and suddenly you are spending money that's like saying I want to make friends later when I'm 50 or that's like a lot of Indian parents who tell their kids don't date okay you're 26 time to get married it's like what I'm missing an entire skill set here
you end up not learning the skill of spending money and that is a skill something that has to be learned in your 20s your 30s your 40s of course you should save of course you should invest aggressively I talk about that all the time but you've also got to exercise that spending muscle now because if you don't it deteriorates and in fact you create new grooves that simply tell you the only right thing to do with your money is to accumulate it or even hoard it and the third problem with fire is that it's a
movement that often valorizes how little you can spend that becomes toxic you can see it in fire forums where people constantly worry about money even when millions of dollars in the bank they often worry about what the community will say if they were to buy a nice car I've had people on my podcast who have millions of of dollars in the bank they want to buy something nice like a nice bag but the question is what would my friend say and that demonization of spending within the fire Community creates an unhealthy relationship with finances if
you want to buy something and you can afford to do it I'm all for it now the good news is that in recent years there are more and more people in the fire Community talking openly about spending money on the things they value there are prominent members of the fire Community who have come out who have spoken about their struggles in spending money and their journey to be able to spend money meaningfully there are other folks who have shared some of the things they've bought and how it has affected them in a positive sometimes even
negative way there are conferences where fire attendees are now talking about the meaningful lives they want to create not simply the amount of money they want to save I love that that's a totally healthy development and I'm a big fan of it we don't want an unhealthy relationship with food just as we don't want an unhealthy Rel relationship with money money is not meant to Simply Be accumulated it's meant to be thoughtfully respected saved and invested and yes also spent before I get to the third part of this video do me a favor hit subscribe
turn on notifications it helps this channel grow and it lets me keep sending you new ways to think about money every single week all right that brings me to part number three how to achieve Financial Independence the right way now fire is not easy and often you'll hear people who are not in the fire Community instantly dismiss it they'll say things like I'm too young to think about that or 50% savings rate I can barely save 5% it's interesting by the way the people who say I'm too young to think about saving and investing just
a few years later you'll notice that they change and they'll say it's too late for me to start isn't that interesting often you'll hear people say this beautiful Chestnut I'd rather spend my money now than nickel and dye myself for the next 30 Years nobody told you you have to nickel and dime yourself but what about being thoughtful and intentional with your saving and investing of course the real answer is that you can choose whether the crossover point is part of your rich life and if you want to reach it you get to choose how
to achieve it so how do you achieve Financial Independence like I mentioned earlier in this video a lot of people in the fire Community Focus on saving a huge portion of their salary forget about 10% or 15% a lot of them are talking about 40 50 70% let me give you an example let's say your household income is $80,000 your monthly expenses are 6,000 bucks theoretically you could reach your crossover point in 38 years if you follow the usual advice of saving and investing 10% or you could reach it a lot faster let me show
you with some real numbers option one you could cut your monthly expenses in half now a lot of people are like off REM you're telling me to cut my money monthly expenses in half do you know how much it costs yes I get it it's expensive but there are also a lot of examples of people in the lean fire Community actually doing it so let's just go through the process following the strategy for example you could reach your crossover point in just over 12 years keep in mind the trade-off here 12 years is really fast
for a crossover point but you've targeted ongoing spending of $36,000 per year every year and that's quite low for a lot of people in fact according to the US Bureau of Labor Statistics the average US household spent $72,000 in 2022 let's take another option option two you could raise your income let's say you follow the advice in my book I will teach you to be rich and on my website to negotiate a 30% raise if you take all that extra money and you invest it you'd hit your crossover point in 22 years notice that this
takes longer than option one actually a lot longer but in this example you've targeted spending $72,000 per year that's much more in line with what the average US household spends and you could probably maintain it a lot easier or option three you could do a combination of both if you increase your income by 30% and cut your spending by 30% you'd hit your crossover point in just 9 years that is an extremely short time to your crossover Point combined with relatively High High spending and that shows the power of targeting both your income and your
expenses now remember a lot of people don't think about their earnings and spending in this strategic of a way and as a result they do the same thing most other people do they spend pretty much all they make they save a tiny amount whatever's left over they end up working for decades and then they find themselves ranting about taxes on Twitter without knowing what the hell they're talking about or what a marginal tax rate is do not be that person please recognize you have the power to dramatically change the way you approach your working years
you can earn more learning how to increase your salary is a skill you can spend less the fire Community has shown us it's possible or you can do both you decide on your rich life let me tell you about my personal choice I actually like the idea of spending extravagantly on the things I love what do I mean by that that means that I'm much more more aligned with fat fire than lean fire I'm willing to work I've built the skills to increase my income I invest aggressively I want to live in cities that tend
to be pretty expensive that is the choice I have made but I'm not particularly interested in retiring early maybe I will maybe not but it's not a goal of mine it's not something that I work really hard towards I put money aside I've set up money rules for myself and I know the type of lifestyle that my wife and I would like to live with that said retiring early doesn't always have to be part of fire you can choose to Simply become financially independent and then decide what you want to do all right now that
you understand the different types of fire and some of the problems that I want you to be aware of use this video to decide if going after fire is part of your rich life if so let me know in the comments which option you're going to use to Achieve Financial Independence now check out this video pop up on screen to watch more
