The "FIRE" movement

Discussion in 'Business, Investing & Finance' started by BMF, Sep 19, 2019.

  1. BMF

    BMF Bad Mother....
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    FIRE: Financial Independence, Retire Early

    I'm 49 years old...so the "RE" part is kind of past me, but I do expect to be "able" to retire within a few years (but plan to work a little longer to save more). This is a good article about a 24 year old kid in the Chicago area pulling in $230K/year (from full-time job, a side lawn business, and real estate). Amazingly, he's making around $200K as a lineman at an electrical utility (w/ overtime and bonus). Good read:

    24-year-old earns $230,000 a year working 3 jobs

    24-year-old earns $230,000 a year working 3 jobs

    Ask Alex Sanchez how many points the Dow is up or down on a given day, and the 24-year-old can give you an update that's just as good as if you tuned into CNBC.

    The West Chicago resident is a bit finance obsessed. He watches YouTube videos on budgets and investing, tracks his net worth on a white board in his bedroom and aims to save more than $7,000 each month. In addition to his full-time job as an overhead lineman at an electric utility company in the Chicagoland area, he has two side hustles to help pad his savings account and investment portfolio.

    Sanchez has big plans. He's a fan of the FIRE — financial independence, retire early — community, and he'd like to be a millionaire by 30.

    But he's not just interested in his own financial future. As a first-generation American, he's also planning to help his parents, who immigrated from Mexico and met in the West Chicago area, retire comfortably one day.

    "I have to give back to my parents, because they came here as immigrants to give us, their kids, a better life," Sanchez tells CNBC Make It. "I know all the sacrifice and pain that they went through, and I would stress it's my duty to give back to them."

    Sanchez says he grew up lower middle class, and while his parents provided everything he and his brother, Oscar, could need, they also often missed events, like his baseball games, because they had to work.

    Investing and saving a significant portion of his income has become a way for Sanchez to ensure that he has the flexibility to choose how he spends his time. Should he have children of his own one day, he doesn't want to miss out on Little League for work. And he wants to make sure his parents aren't tied to their jobs forever.

    "I want, as fast as I possibly can, to tell them to quit their jobs and not worry about their bills, because I can handle their bills," he says. "Everything I do is pretty much for them."

    What he earns
    Sanchez's income fluctuates monthly, depending on the number of overtime hours he works at his day job, and how much business his lawn-care company drums up. He recently got a promotion at work that puts him at a base salary of $120,656. With a $10,000 annual bonus and all of the overtime he's accrued, he's on track to earn more than $200,000 this year.

    Sanchez dropped out of college, so he does not have student loans. The utility company he works for paid for his training, and he often works Monday through Saturday, typically 60 hours per week, depending on the company's needs. If there is a storm or something else goes wrong with the utility wires, he's expected to be on call. He will also occasionally travel to help areas hit hard by storms or other emergencies.

    It's physical work that Sanchez enjoys. Some days he's in the office, but most days he's out in the field, replacing conductors and installing new electrical lines.

    "There's no better feeling than turning the lights on when everyone's relying on you," he says.

    On top of his day job, he brings home an additional $3,100 per month, on average, from his side hustles. Sanchez runs his own lawn-care and snow-removal company, which grosses around $9,000 to $10,000 per month. After expenses, including taxes, salaries and other overhead, Sanchez earns around $1,500 per month, though it varies depending on the season.

    Sanchez owns three rental properties, including an apartment, a condo and a single-family house that he co-owns with his mother. The properties gross $3,825 per month, and he takes home $1,600 per month, after expenses like taxes and insurance. His mother makes $500 from the property she co-owns with him.

    With his side hustle income, Sanchez is on track to earn more than $230,000 this year. His goal is to keep growing that total each year, as he adds rental properties to his portfolio and moves up the ladder at work.

    How he budgets
    Here's a breakdown of everything Sanchez spends in a typical month.

    Business expenses: $8,850
    Depending on how many jobs he books, Sanchez spends around $7,100 each month to operate his lawn-care business. That includes salaries for his brother and one other employee, overhead expenses, taxes and insurance

    He has paid off the mortgages on two of the three rental properties he owns (he paid in cash), while he put 20% down on the third. Including taxes, maintenance, insurance and the mortgage for his newest property, he spends $1,750 per month for his current real estate portfolio.

    Saving up the cash to buy the first two properties outright was important to Sanchez. He paid $68,000 for the condo last fall, and split the cost of the $92,000 house with his mother earlier this year.

    "I knew that if I was going to invest in real estate that I would need a lot of money," he says. "I took on side hustles, I worked as much overtime as I could at work and I just kept my expenses as low as I could."

    Savings: $7,800
    Sanchez aims to save $7,000 in cash each month, and contributes $800 to his 401(k). Right now he is prioritizing building up his liquid savings so he can buy more rental properties — his goal is to amass a portfolio of 20.

    Plus, he's already thinking about the possibility of marriage and a family. Aiming for early retirement, he wants to save as much as possible now so that when he does have children, there's less pressure to save so much.

    "I definitely try to save as much as I can," he says. "I wasn't raised with money, so I feel like that just pushes me, because I want to work harder to one day become wealthy."

    Robinhood: $1,000
    Sanchez is very interested in the stock market and eventually wants to start day trading. On top of his retirement account, he invests an additional $1,000 per month using Robinhood, an investment app. Right now, he has more than $17,000 in investments in the account.

    "I was never really taught how to manage money. I just knew my mom saved money, and she would always tell me to save," he says. "Later, I realized that it has no point if you don't invest it."

    Food: $400
    Outside of his businesses, savings and investments, Sanchez tries to spend less than $1,500 per month on personal expenses, of which food is his largest spending category. He doesn't eat out often, though occasionally he and Rosy, his girlfriend of five years, will go into the city of Chicago to enjoy a date night, costing around $100 per month. He cooks most of his meals at home, spending around $300 per month on groceries.

    Transportation: $295
    Saving such a high percentage of his income allowed Sanchez to quickly pay off his 2011 Ford Edge, so he doesn't currently have a monthly loan payment. He spends around $200 in gas and $95 in tolls and maintenance.

    Housing: $250
    Sanchez lives with his mother and brother in the house where he grew up, and the mortgage is paid off. He covers utilities, including gas, hot water, electricity and trash service along with any maintenance issues. His brother pays for Wi-Fi. While his parents are separated, his father lives close by and visits Sanchez and his brother often.

    Not every 24-year-old with a serious girlfriend would opt for this kind of living situation, but to Sanchez it makes perfect sense. He plans to live at home for a few more years, until he's comfortable with his financial progress. The savings is well worth any potential privacy issues, and he likes that he's able to help his mom out.

    "I do plan on getting married and having kids, I'm just not in a rush," he says. "Maybe I'll have kids at 27, 28, but having three years of working, saving and investing will put me pretty far ahead, so I don't have to put in as many hours when I have kids."

    'Fun' budget: $150
    On top of the $100 restaurant budget, he allocates another $150 to "fun" each month. This money funds nights out with friends or other excursions with Rosy.

    Sanchez makes a very conscious decision to not spend much on discretionary expenses. He says this goes back to one of the biggest lessons he's learned about money: It is easy to make, but hard to keep.

    "Money to me represents your time. Every time I see a dollar, I see that dollar as my time, and time is the most important thing to me," he explains. "The reason I don't spend money on dumb things is because if I throw money away, I'm throwing my time, my life away — and it's just something I'm never going to get back."

    His one recent splurge is a tattoo that he got in honor of one of his best friends, who died in 2018. Encompassing most of his left forearm, he has spent $500 on it so far, and it is about halfway completed.

    "It's just something that means a lot to me," he says. "I'm not going to penny pinch on something that's really important to me."

    Everything else:
    • Insurance: $208 (includes health, dental, vision and car insurance)
    • Travel: $100
    • Subscription services: $103 (includes gym membership, Audible, Netflix and video software)
    • Pets: $30 (includes food and toys for his dogs, Bella and CiCi)

    (continued):
     
  2. BMF

    BMF Bad Mother....
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    (continued):

    How he intends to reach financial independence
    Sanchez wants to become a millionaire by 30. He plans to do that by building up his real estate business: He wants to acquire four new properties each year for the next five years, for a total of 20 units. That passive income stream coupled with his savings rate and other investments makes him confident he'll reach his goal.

    "I definitely encourage other people to look into real estate," he says. "It's something that technology will never be able to replace. People always need a place to live, no matter what, even if the economy is bad."

    Not everyone would want to operate two small businesses on top of a 60-hour-per-week job if they didn't have to, but Sanchez doesn't mind: "It's just something that was in my DNA."

    "Ever since I was young, I just liked the idea of having money," he says. "I would sell lemonade when I was a kid, I would go out door to door selling candy bars or rake [neighbors'] leaves."

    Sanchez doesn't budget. Instead, he focuses on how much he'd like to save each month.

    "If I know I'm having $10,000 come in for the month, I try to save 80% of the income," he says. "If I hit the goal, I don't worry about the budgeting. If I don't hit it I go back and say, 'OK, what did I do wrong?'"

    His money mindset is infectious. His younger brother, Oscar, who is attending college but still lives at home, says he used to live paycheck to paycheck but has made some changes as his older brother has shared some of his personal financial wisdom. Oscar recounts a time when they both were heading out for the day, and Alex took the time to explain the stock market to him for 30 minutes.

    Now, Oscar is trying to save more money, too.

    "The way he thinks about money is pretty advanced for someone his age," says the 20-year-old of his older brother. "He's a pretty straight arrow. He's very frugal, but not in a bad way. He's sure of what he doesn't value."

    What the experts say
    CNBC Make It asked Barbara Ginty, a certified financial planner and host of the "Future Rich" podcast, to comment on what Sanchez is doing right with his money and where he could improve.

    Max out the 401(k) contributions
    Right now Sanchez is on track to contribute $9,600 to his 401(k). But given his savings rate, he could easily invest $19,000, the 2019 contribution limit. And that will help bring down his taxable income.

    Focus on the real estate side hustle
    Building his rental property portfolio is a smart way to FIRE, says Ginty. Even if he were to eventually drop his day job, he'd have a virtually passive income stream. If he wants it to be truly hands off, Sanchez could hire a management company to handle tenant relations.

    "If you struggle to get employees or they are problematic, you might struggle to grow the lawn business," says Ginty. "With the real estate, that seems like a business you could grow more easily when you are working a full-time job."

    She suggests that Sanchez continue to live at home as he builds up his savings, and use the income from his day job to invest in his businesses, which could allow him to work on his own terms in a few years.

    "[Real estate] is great income, so do it as long as you can," she recommends. Once Sanchez expands his businesses, "he can use that income to help his parents retire if they are not in the position to do so on their own."

    Spend more on yourself
    Ginty points out that Sanchez could spend a bit more on himself each month. Working toward his goals is admirable, but more date nights with Rosy or quality time with his brother and parents might add to his happiness now, considering he's able to save so much money. Dropping a few dollars on experiences with friends and family wouldn't really hurt his bottom line, and his parents likely want him to enjoy some of the fruits of his labor.

    That said, if allocating his money how he does currently makes him happy, and he's laser-focused on helping his parents, there's no reason to change.

    "He could allocate some more money in his budget, if he chose to, for discretionary use," she says. "But if his goal is FIRE, he is doing the right thing by having such a high savings ratio."

    He's doing a 'great job'
    At his current rate, Sanchez is saving 46% of his income, an impressive feat, says Ginty, that puts him on track to FIRE. (He saves or invests a total of $8,800 out of his $19,250 monthly earnings.)

    "If you do want to be part of FIRE, I think it's really important that you have multiple income streams, and he is accomplishing that," she says. "It's incredible that he's saving that much."

    Building up a passive income stream with the rental properties is a great way to approach it, she says. Ultimately, all of Sanchez's hard work now will give him freedom in the future.

    "Not to say that you sit at home and never work again, but it will give him more control over his future," she says. "He doesn't have to stay [at his current job] until he gets his next job, he can live off of rental streams for support. That's a nice place to be."
     
    • FireFoley

      FireFoley Senior Member
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      Great read. Thanx for posting. So rare to see a young person busting his ass by working hard so that he can take care of himself and others. Most people his age are lazy and want to be taken care of.
       
      • CGgater

        CGgater Gainesville Native

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        I have to comment on your “retire early” lament. I’m reminded of a commercial covering the topic of people living longer (maybe e trade?). 49 isn’t old. If people “call you DJ Nanna,” then you might have a reason to claim you didn’t retire early.
         
      • Politigator

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        I've visited some forums where FIRE comes up quite a bit. My various observations:

        - I think the FI aspect is very admirable through hard work, aggressive saving/investment and frugality. That is a positive development

        - the RE component in some cases is unrealistic. They plan on building a million, sometimes less, by their early 30s and living on that for the rest of their lives. They figure they can draw 4%, inflation adjusted in perpetuity and live frugally on $40k per year.

        - when markets reach high marks and you have extended bull markets, people tend to think things will be like this forever. But what if markets drop 50%, and stay depressed for a decade. This has happened. So now they are drawing $40k per year on $500k, or 8% of your portfolio a year.

        - in the US in recent decades, the markets come roaring back in a few years. But they stayed basically flat for more than a decade post 1929, and for about 15 years after 1967. In Japan the market still hasn't recovered 30 years later.

        - finding a job, when you've been out of work and the economy is weak is much harder to do.

        - **** happens. Medical bills. You have a baby. Maybe parents become ill and financially strapped

        - the idea of gainfully working 15 years in an 85-90 year life just seems counter intuitive.

        - if you want to retire that badly, it is probably an indication you need to change something. It is possible to have more balance.

        - if I retire I don't want to worry about money. I'd like to have enough money to enjoy life. Living on $40k for the rest of my life worrying about a market crash isn't living.

        - for those who want to dabble in real estate, that's great. It's a good additional income source for a lot of people. But it isn't risk and effort free, it can be a bit of a grind, and for most the cash flow stream is pretty modest as long as you are paying off the mortgage. And as we've seen it isn't immune from ups and downs either.
         
        • BMF

          BMF Bad Mother....
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          MC, yes...49 isn't "old" by any means. I hope to live another 30+ healthy years (healthy in the aspect of being able to still comfortably live life....and wipe my own ass!). But these people in this "FIRE" movement are generally in their late 20's/early 30's (up to early 40's at the oldest). I could hang it up next year after I retire w/ around a $100K income, but I see that as a loss of a lot of earnings (working for 5 more years would allow me to save that entire amount per year plus add to my TSP, etc). It's still nice to think about retiring and not having to go into an office everyday!
           
          • CGgater

            CGgater Gainesville Native

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            If I'd joined straight out of HS, I'd have retired at 30 a few years ago. If I invested in Amazon when my wife suggested (under $2.50 per share) I'd be sitting on a bonus half mil in savings. If ifs and buts were berries and nuts, I'd be a happy squirrel.

            Don't drive yourself crazy second-guessing your situation. At least you're not living in a VAN down by the RIVER!
             
            • Detroitgator

              Detroitgator General Factotum
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              Sounds like my kids.
               
            • Detroitgator

              Detroitgator General Factotum
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              You still don’t get it... at all.
               
            • Politigator

              Politigator L-boy's Cousin
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              I know. Only you have all the answers in life. You have made that quite clear, multiple times.

              If you are going to participate in this particular forum, it would be best to actually contribute ideas, vs trolling posters you don't like and beating them down with petty insults.
               
            • Detroitgator

              Detroitgator General Factotum
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              Interesting... because that’s essentially what you did to the OP.
               
              • Politigator

                Politigator L-boy's Cousin
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                No not at all. He was sharing a particular example of someone pursuing FIRE. I will say that in the example he is sharing that person is doing mostly everything the right way. Building up different income streams that can carry you forward. His desire to be a day trader is a waste of time, but everything else is on the mark.

                It depends on how you define "retire early". I have read countless otherFIRE posts and articles elsewhere describing how someone plans to build $1 million or less, and then live on the magical 4% rule going forward. I suspect a good number of those will have a change of plans down the road.
                 
                • Detroitgator

                  Detroitgator General Factotum
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                  I'd say he's living under what I've been calling "the new rules" that I've been talking to you about for 15 years now and are the key to the future/independence.

                  At his age, "FI" is a million at 30, or 20 rental properties by 30. That essentially then gives him the "FI" required to work on the "RE." Given that he will likely have upwards of 20 15/30 yr mortgages on those properties, his "RE" horizon is between 30 and 50 years old, and that's assuming he stops generating additional revenue streams when he's 30... he won't. He'll explode to 100 properties (if he wants to, maybe he doesn't, maybe he's looking for the amount that gives him control of his time).

                  He might even go bust once by 30, lot's do, I did too with the thieving partner, but I guarantee you this guy will hit it again and be there by 40.

                  One thing I can guarantee you about this kid, and I hit Mo about it all the time: he doesn't waste a second of his day chatting in a box or posting in a forum, about how the system is rigged and the American dream is dead.
                   
                  #13 Detroitgator, Sep 24, 2019
                  Last edited: Sep 24, 2019
                  • Politigator

                    Politigator L-boy's Cousin
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                    I have no issue with any of this. I really wasn't so much talking about this kid, more so what I have generally seen in the FIRE movement. I probably didn't make that clear in my first post. I have a lot of respect for that kid.

                    As to your last comment, I mostly agree with that too, but my counterpoint is that not everybody can be that kid. Not everybody can be landlords. You have to have people to actually rent the properties (to be clear I am not saying that not everybody has the capability to do it - which they don't - but that's not my point - I am saying, literally, everybody in the country can't be landlords)


                    Given the amount of posting you do here I find that aspect of the comment odd, but whatevs.
                     
                  • Detroitgator

                    Detroitgator General Factotum
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                    I didn’t post when I was in the “FI” stage, I can post anytime anywhere in the “RE” phase, that’s how it works
                     
                  • Politigator

                    Politigator L-boy's Cousin
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                    OK. Well you have pretty much said almost everybody in this forum should STFU and get back to work.

                    Nice. :lol:
                     
                  • Detroitgator

                    Detroitgator General Factotum
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                    No! I just in fact tell people not to ***** about their life, or the dead American Dream, or “the evil rich” when posting endlessly... take half that time and go figure out how to do something different. ;)
                     
                  • DocZaius

                    DocZaius Damn Dirty Ape
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                    Kudos to that kid for having some hustle, but how many people have a job paying $120k base salary at 24, with no college degree?
                     
                    • Detroitgator

                      Detroitgator General Factotum
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                      That's not his base salary (if I remember)... he's a lineman who works every second of overtime he can. Nearly every non-physically handicapped 24 year old male can do that.
                       
                      • BMF

                        BMF Bad Mother....
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                        Before I went active duty military I was a full-time professional firefighter. I worked every second of overtime I could get, I was in the reserves (which was 2 days/month, 2 weeks/year), and I worked at a private ambulance company as a paramedic (I worked practically every weekday I wasn't at the fire station). I was only making $50K or so base salary on the FD, but I made almost double that from OT and the two part-time jobs. I never feel sorry for anyone who says they can't make it in this country. There are so many opportunities - if a person would simply get off their ass. It's not hard to get ahead (and live within your means, obviously - but that's a different discussion).
                         

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