The biggest mistake in the FIRE movement

The FIRE (Financial Independence Retire Early) movement is growing and soon you will probably see it thrust into the mainstream conversation due to an upcoming film "Playing with Fire".

The FIRE movement attempts to hack the numbers of earning income, intense savings and frugal living, to create enough of a savings asset that would be more than enough to live off the interest and dividends to fund your day to day life, thereby removing your need to grind through that corporate job, etc. It is a message of hope and a positive direction for everyone.

Who wouldn't want this, right?

There's a few problems with FIRE

First the problem is that those who are preaching it are young. Nothing wrong with that. But often they haven't been through life's "round the block" experience that much. It is easy to say, "If I save up $1 million, and invest it, I can give up my career, job, etc. and just live on a beach.". Yeh, try that. After a month or so, the beach starts looking about as attractive as the cubicle that you left. Life isn't a simulation on a spreadsheet, or a virtual world experience in a video game.

Second, life happens. That means you get older, you get married, you get divorced, you have kids, you have parents that need support, god forbid you have a car accident or some medical emergency, etc. All of these things are HUGE financial impacts. Maybe you get sued. Maybe you mess up on some investment. Maybe the stock market crashes and wipes out 50% of your savings. Maybe you have a rental house that burns down and the insurance company won't pay. Maybe there is a flood or a hurricane. You get the picture. Life is unpredictable and if it does anything, it will throw stuff at you at a time when you are least able to defend against it. If you have taken away your cashflow from income, that makes you even more vulnerable.

Third, what if you got the numbers very wrong. Let's say you follow the old 4% rule. This is a rule that says you can safely withdraw down 4% of your retirement fund to live off. But this number is artificial. Because you can't predict the future.

Fourth, and this (I think) is the most important factor. When you elect to leave the institution of a job & employment, the buck stops on your desk now. Like starting a small business, you are responsible for everything. You can't share that with an employer. Even if you hate your job, you get a paycheck. You get predictable cashflow. You can rely (somewhat) on a pay check coming in, and your spouse, family, etc. can share in the stress reduction that the money is there. If you hang up your skillset (even for a short period of time), you are going to have a hard time returning to work. Not to say that it can't be done, but you are banking on NEVER returning to work. In a world where each day a robot is going to take a job, you can't determine that the economic conditions that might go south on all of us means you need to return to work. And as Murphy's law would dictate, this is probably at a time of higher unemployment and employers demanding more and more from their people, and you competing for a smaller number of jobs with a lower grade skillset because you stopped working X years ago. Not a nice position to be in.

Remember that self-employed people don't get a 401k fund that their employers are contributing to. They don't get health insurance provided to them as part of their salary package. They pay for all of this on their own. In Arizona, the cost of healthcare for a family of 3 when you are self-employed is anywhere between $800-$1,500 a month. Yep - a month. Your employer was paying for this for you. But now you are on your own, you are literally "on your own". Welcome to my world, people.

Here are the misconceptions

If you need some hope to get you through the day and FIRE is that hope, great. If it works for you, do it.

But the leap from employment to non-employment, is not a leap away from living a regular life. Particularly in the western world. The responsibilities that you are encumbered with are still there. Sure, you can pay off your house. But you still need to pay the property taxes, insurance, fix it when it breaks, upgrade things as they wear out, etc. Sure, you can pay off your car, but five years later you are probably going to want a new one. Sure, you can grow your own vegetables and be self-sufficient. But someone has to pay the water bills, and do the hard work.

You see, independence isn't a holiday. It is a responsibility.

What most younger FIRE followers forget is that back about 10 years ago, we had a massive recession. Horrible economic times, and getting any return on your investment back then was hard. This happened about 7 years prior with the Internet bubble crash. And prior to that. And prior to that. See, we have had 10 years of relatively positive economic upward movement, but that has to be followed by 10 years of downward. It is how the universe balances itself and you can't go against it. Those that retired early are least equipped to handle macro economic downturns.

Recently there was a bit of flack in the media world where the financial guru, Suze Orman, was interviewed on a podcast by Paula Pant Afford Anything Podcast in which she basically said much the same things that I'm saying here. The reality of the promise of retirement and the actual reality of retirement are very different things and it is one of those "be careful what you wish for, because when you get it you might not like it" tales.

Of course this caused a lot of anxiety and naysayers in the FIRE movement, who had been preaching this promise of a retired life to thousands for a long time, but with only a very small percentage of those preachers having achieved it. And of course they now have nothing to do with their time other than to evangelized others to follow in their footsteps, but do not tell the story of the downside of that lifestyle change. We owe it to ourselves to see all sides of a coin before deciding if we want to flip it.

The answer may actually be a hybrid

Like most things, the truth and answers to life's challenges sit somewhere in the middle - between the On or Off extremes. And the answers change over time, as life cycles from up to down times. But there are some "sweet spots" in all of this I wanted to unveil.

First, let's lose the word "RETIREMENT". I hate it. It suggests the end of work.

Second, let's redefine the term "WORK". If you are selling your hours to a boss you hate, to a company you don't like and for a cause you don't agree with, then you need to stop that. You haven't found your calling and for the rest of your time working, you will hate it. That's just the human experience of dealing with one's mistakes.

But what if "WORK" wasn't work at all. It was passion. It was your calling. It was natural to you, and something you would do if you were not being paid? What if you found that and you could pursue it? And what if you could pursue it on your terms? Then you would be living a life of leisure and earning an income. That, to me, is the ultimate goal.

And the reality is that for you millennial folks, it is sitting in the palm of your hand right now but you forget to grasp it. The Internet provides us all with a way to earn money and not be strapped into a chair in an employer's cubicle. It allows us to live a mobile life, be a digital nomad. All new inventions these days involve it. Most new opportunities are based in some way on it. Crowd sourcing, the "sharing economy", etc. It all relies on the Internet as its foundation.

If you are reading this, you are on the Internet right now. I don't know if you are working as you read it, being paid by the hour, or not. But I do know that if you are at home, you probably still use the Internet. And you probably don't consider that work. The truth is that our digital life is just that - life. You don't stop living when you retire, and you don't stop life when you are on the Internet.

So if you believe, like me, that living on this wonderful planet is a blessing and that we all have one mission and that is to find what our calling is in life, then it won't be found in some cubicle somewhere. It is going to be found out there - you have to roam and find it. Maybe that involves travel. Maybe that involves meeting new people. Maybe that involves experimentation - go to a conference on a topic you might have some passion for, join a community, a club, etc. You have to get up and go out there and find it. If you succeed, you would find a passion and a calling that isn't work. Now you have retired and you are earning money.

You are someone more interesting to be around. You have a story to tell. You can positively motivate and influence those that are around you. You can "pay it forward" by telling others what you discovered and that they could to.

See, this isn't a boolean thing. It is not an on or off switch. You need to find something that works for you and we are all different. Simply following herd over a cliff isn't going to work. Finding your individual calling is.

The key word - Sustainability

I'm not just talking about sustainability in ecology. I'm talking about financial sustainability here.

Think of it this way - if you can calculate what it costs you to live now, and what you think it will cost you to live five years from now, and average that out, you have a number. Let's say it is a monthly number. Whatever that number is, it is your number. Add to it the dynamics of changes to family - up or down. Consider the changes to the economy and work out some risk factor that you live. That might include the number of hours per week you spend on the road, exposed to car accidents. Where you live and the proximity to earthquakes, hurricanes, tornadoes, etc. Have some variable in place for those sorts of things. But you have a monthly number you have to reach in terms of income.

Now you need to make that income. Let's add one more wrinkle to this whole thing. Imagine you couldn't do it personally. Imagine you had to have machines make the money. Let's call those things "assets". So if you owned a rental property, it would generate income. If you owned dividend producing stocks, they would send you a check. If you had shares in a business but you were not active in it, if you owned vending machines, laundromats, etc. So while you sleep, they make you money.

Could they make enough to cover your income? What if you could adjust your expenses to reduce that burden?

We just went through an exercise to consider putting solar power on our house. I learned a lot. First, the technology as it is right now isn't able to work for me that it can produce 100% of my energy needs. There might be ways, but economically it is prohibitive. I'm going to keep an eye on this as technology improves, but it isn't the right time. However I realized there is one thing that I can do to positively influence the numbers...

Reduce my energy consumption. I can first install sensors that tell me where my energy is being used. With the information from that, I can focus my attention on what is consuming the energy and swap it out for more efficient versions. I can change my habits. I can learn how to be more efficient. I've done that and in the past 12 months, we have reduced our power requirements by about 20%. That involved investing in new windows, fixing gaping holes in the house, investing in more efficient technologies, moving away from computers that drew more power than necessary to smaller appliance based solutions, etc. You can do this relatively easily and get new stuff. Reduce your footprint, and then re-visit the numbers. They look very different now. Maybe still not enough, but you are at least heading in the right direction.

It is the same for passive income generation. You won't get all of your income needs satisfied all at once. But you can start to invest in diversified passive income streams. Whether that be crypto-currency or blockchain based endeavors. Or robots. Or vending machines. Or rental properties, etc. It is a long game. This stuff takes time. But the most important thing is to manage the numbers. Know your financial footprint, and know your income coming from passive sources.

When your base income from passive sources meets or exceeds your financial footprint, you have done it. THAT is your version of retirement. At that point, you are in charge of your time.

The less you are reliant on humans for this, the better. Because they are fickle and unpredictable. But if you can use assets that are manageable, you should be able to be fine.

Then what do you do with all that new time you have? That's up to you. Welcome to the dilemma of a retired person. But you are energized with your success. Maybe you want to double down and increase it. Maybe you want to travel. Who knows. But if you did this correctly, you should be free.

Life is about being unconstrained

This is the message of my articles. Freedom isn't an escape from life. It is an escape from the clutches of life. FIRE is all too often sold as an "escape" from employment. It shouldn't be. It is a faith based movement that, like most other faith based movements, tends to only support a small percentage of the front-runners and the rest are left following a cause like a zombie apocalypse.

Realize what this is about, and redirect your life accordingly.