7 Thoughts on How to Approach FIRE (Part 3)

“Heigh Ho, Heigh Ho, it’s off to work we…”

Oh Greetings there!

How are you?

Welcome, welcome to my humble abode – where we discuss all things finance and how it relates to YOU.

Points finger in your direction.

Please, please step inside from the cold.

Opens the front door to reveal a warm and welcoming fire burning in the sitting room.

I know, it’s freezing outside isn’t it?

But don’t worry – we’re in the worst of it now, it will be over soon.

Hmmm, that reminds me on the topic in which we are discussing today, “7 Thoughts on How to Approach FIRE”.

Now mind you, I’ve already gave out the 7 thoughts here and here in response to my friend’s Bugzy’s question on how to achieve FIRE – but I did promise in the last post to lay out my plan as to how I, myself intend to achieve FIRE.

Takes deep breath.

So are you comfy? Warm and cosy enough?

Cos here goes:

What’s my number?

You know, I’ve been thinking about this for a long time now – initially I thought that an inflation-adjusted passive income of around $100,000 p.a. would be a fantastic achievement in order to achieve FIRE status, but now I’m not so sure.

With the increase in living standards and the fact we are living longer, means that the bills and expenses would surely pile up as we age.

Hence I’ve gone with a figure of $150,000 inflation-adjusted in passive income.

At a withdrawal rate of 2.5%, this would mean around $6m inflation-adjusted assets to achieve this.

HOLY SHEEEEET.

Save, save, save! 

So in order to get there, I discussed previously how personal finance is really as straightforward as:

Income – Expenses = Savings for Investment.

I’ve worked out that with my cost of living, I should be able to save around $40k every year net.

Hopefully as time progresses, so does my career and associated wages, which should also bump up the savings amount.

But TheFrugalSamurai! What about lifestyle creep? You know, the more you earn, the more you spend to keep up with your lifestyle?

Well, as MrsFrugalSamurai can attest to – lifestyle creep and TheFrugalSamurai are not the best of friends.

What’s your risk profile?

OOOooo – I know this!

Well, I should know this – because there’s not much in me having this blog if I don’t understand the fundamental pillar of personal finance.

My personal risk profile is balanced but erring on the conservative side.

WTF does that MEAN?

Hey! Take it easy, no need to be rude – balanced in the sense that if there is an opportunity, by all means I will load up on it. But normally I tend to be conservative.

That is, although I have small holdings in alternative assets such as cryptocurrency, the bulk majority of the assets are in relatively stable classes such as real estate.

Having seen $40k (what is it with this number) go up in flames during the GFC, I feel like this approach is best suited for myself in the long term.

Look! It’s the Event (Time) Horizon!

For a long time now, I’ve thought to myself that 50 is the magic number, once I hit that age – then FU big brother, I’m out of your corporate clutches.

I still hold true to that, except now I’m thinking wouldn’t it be nice to have the option to work part-time at 40, and concentrate on other businesses (I have some ideas, this blog for one!), investments and hobbies for the rest of the time (only if the income can be supplemented though…).

Anyhow, 50 is the age I’m looking forward to hitting, because I’d love to see how far I go in the 20ish years I have left to get there.

How will you do it?

This is the meat and vegetables of our dish – I mentioned earlier that I have around $40k to play with each year, with a conservative risk profile.

The most comfortable asset class that I understand is real estate. This is because I am associated with the industry through my day-job and also I have a genuine passion for learning and researching about property.

I’m also in the fortunate position to be sitting with around $1.1m in net assets (read more about my numbers here). Using Investopedia’s compound annual growth calculator, I can see that in order to reach my end value of $6m in 20 years – then an annual growth rate (or overall return) of 8.85% is required.

This overall return figure of 8.85% is paramount because it’s what my investments need to return each and every year starting right now.

Some years will be less, some hopefully more – but in the long run, to achieve my goals, I’ll need 8.85%.

Now the beauty of real estate is returns come from both capital gains and also rental income. The use of leverage allows these returns…

Sorry, what’d you say?

It’s getting late and you better get going?

Oh… OK well  but we were just getting into it!

No problem then – but please, make sure you come back OK? Promise me you’ll do that?

Whew, glad to hear it – see you next time!

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