7 Thoughts on How to Approach FIRE (Part 2)

Welcome back guys!

I’m a bit saddened this weekend.

How come you ask?

Well, MrsFrugalSamurai left yours truly yesterday.

Nothing long-term (I hope), but she did travel to Europe on a work-trip.

Poor her, all that culture and food and warm weather must be tough – hope she’ll be OK.

But all good, she can have the warmth of the European sun, I’ve got the warmth of the legions of adoring fans.

My friend Bugzy commented on the previous post on the “7 Thoughts to Approach FIRE” in his usual witty and happy-go-lucky manner (he’s a closet leprechaun).

But you know, not all of us is blessed with the same green tights and jovial manner when it comes to such a pertinent matter as FIRE.

Without further ado, here’s the remaining 4 Thoughts on how to go about it:

It’s all about risk.

I finished off last time about this topic because I wanted to leave a lasting impression.

Risk. Risk. Risk. Who cares about the risk? I mean, why should we?

But from what I have learnt and read, through all the investment books, biographies, financial journals and self-memos, is that:

The amateur focuses on returns but the professional focuses on risk.

This is what Mr Buffet means when he says the number one rule of investing is to “Never Lose Money”.

Took me 31 years to sorta understand what he means by that.

With compound interest and the time value of money, losing money through risky or speculative investments means that it takes more effort to get back to zero:

When it comes to FIRE, losing money early on can have devastating effects to your overall plan.

Time Horizon.

Not only do you need to understand your risk profile, your savings and investment rate, your income and expense figures – you also need to understand the time horizon of when you want to FIRE.

Some people want to retire yesterday, but they are working 30 hours a day, 18 days a week to get there.

Other people want to retire on the age pension at 67, are happy with the regular 9 to 5 and don’t mind contributing a portion of their pay packet (superannuation, which is kinda like the 401k my American friends) with 4 weeks employer-sponsored annual leave.

That’s fine and dandy in both scenarios – just make sure you understand when you want to achieve FIRE and recognize the timelines involved may require you to take on more risk (returns), invest larger amounts and more specifically how to get there.

How?

Well, you need to find out which asset class suits you – it could be shares, real estate, fixed income/bonds, ETFs, cryptocurrency, hell it could be any asset class. Rob a bank if you have to (please don’t), because ultimately you need to find an asset class which you are comfortable with and most of all – understand.

Hey! I understand how to rob banks! 

No… seriously please don’t.

Most investment and finance resources are tilted towards this section – the various asset classes available all clamouring for a slice of your hard-earned. It’s not difficult to grasp a basic understanding of them given the sheer amount of material out there.

Some people prefer property because of the leverage and tangible nature involved. Others like shares because of the big swings and liquidity, others prefer ETFs due to the low-cost and passive nature. Whatever it is – understand that each asset class has their own risk profile, and to match this risk profile to your level of comfort and understanding.

Not much point in chasing the big returns when you’re invested in an elaborate Senegalese tax scheme which derives its underlying value from the diamond trade for example.

How do you even value that investment!

Recognize FIRE is not easy.

Lastly but most importantly, be aware that FIRE is not easy and dare I say one of the hardest to achieve both from a mental and financial perspective.

There are many pseudo-FIRE pathways – such as gap years, mini-retirements, part-time work – but honestly in my opinion that’s not true FIRE.

True FIRE is the choice and freedom to literally do what you want, whether that is to continue working in a job you love, starting a life project, or just sit back and relax by the pool sipping cool refreshing drinks with small umbrellas in them without feeling financially burdened. EVER.

As Forrest Gump said best:

So then I got a call from him, saying we don’t have to worry about money no more. And I said, that’s good! One less thing.”

Don’t worry about money.

Don’t worry about loss of income from a job.

Don’t worry about unexpected medical bills.

Don’t worry about your investments during a recession.

Nope, not worry about it all because you’ve achieved true FIRE.

So coming back to our friend Bugzy’s question – Bugzy honestly the best way to answer it would be to take inventory of your own situation.

How much do you need? What’s your number.

What’s your income vs expenses? And how to maximize and minimize them.

What’s your risk profile? Are you risk-ay or conservative.

Time horizon? When do you want to achieve FIRE.

Asset class? Which one do you understand and most comfortable with?

Finally, are you willing to work and do what it takes to achieve FIRE? Only you know this.

Stay tuned for the final installment in this series as I work through the specifics of Bugzy’s scenario and also relate it back to my own personal goals – so exciting!!!

Good luck Bugzy – and remember, there are worse things in life than $100k a year, a loving partner and 2 adoring kids to come home to!

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