Financial Independence, Retire Early

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FIRST 3 STEPS TO ACHIEVE FIRE

Financial Independence, Retire Early

Transcript

Mike

Hi, Mike Jacobson here.

Harland

And I’m Harland Meriam.  

Mike

Together we’re Attune Investments and we are putting together a series of videos about FIRE, Financial Independence, Retire Early,

Harland

And this is our second Video, Mike. Last week we looked at what FIRE is, Financial Independence so you can Retire Early, F.I.R.E.  And the difference between your active income and your passive income is a key piece to know as we work this FIRE system.

Mike

That’s right.  Today let’s start with just a little bit of a story to illustrate the three points.

Back before I knew my wife, she was working at a hospital as a nurse up in Syracuse, New York and got off of a 12-hour shift one January morning, walked outside and the parking lot was covered in snow.  The car was under snow, and she was not happy.  So she headed over to the freeway, headed south on I-75 and didn’t stop until she got to Florida.  I can’t blame her, I’m glad she did.

Harland

Yes, y’all wouldn’t have met unless she had.  That, and she did the three things we’re going to look at today: she realized where she wanted to get to, which is out of the snow where she was buried in snow, and she took that step to start heading south so she could get to Florida.  We’ll look at steps today. So let’s come back and look at what’s that first step.

FIRST:  KNOW WHERE YOU WANT TO GO

Mike

First Step is knowing where you want to go.  Have a destination in mind, and for us we want the passive income to be greater than expenses.  

Harland

Yeah, so passive income, with expenses eventually down there.  You may have to drive for a while to get there, so that’s your Florida.  What does it take to get your passive income greater than expenses? Mike, let’s say you have $100,000 in expenses.  

Mike

Then, if you’re doing it with a stock portfolio one of the traditional ways to calculate that is multiply the annual expenses that you anticipate, the $100,000, by 25.  Just simple math, $100,000 times 25 and you get $2.5 million.

Harland

Okay, so that’s the destination, that’s your Florida for the average person that has $100,000 expenses is to get $2.5 million.  One way to do it is in stock and mutual funds.

If you have it, then you can retire when you get there.

What’s the next step though, right now, we need to do versus know where we want to get to?  

SECOND:  KNOW WHERE YOU ARE NOW

Mike

The next step is knowing where you are now.  So what are you currently spending?  What are your monthly expenses are, your annual expenses?  You know some of the expenses are fixed like your house payment, insurance, utilities, while other expenses are discretionary, like maybe buying coffee, going out to dinner, and vacations.

Yeah, your wife might say that’s not discretionary, that’s mandatory, but you have a choice in what you’re going to be spending.  So you have to add all that up, though, because those are your expenses that you’re anticipating.  And then also look at your income, both the passive income that you may have already started, and also the active income.  And then we want to take and invest the difference between our income and our expenses.

Harland

So, we want to take a look and get to the place where there’s more income than expenses and invest the difference, starting now, so that we can retire early. Because when we have enough in our nest egg that it’s producing everything we need for our expenses.  Gotcha. 

Mike

That’s right, and we’ll learn that you know different Investments can get us there faster.  Savings accounts and CDs are kind of slow, stocks and mutual funds are a faster way, and then there’s real estate. And that has, as you know, another dimension to it which we’ll get into in another video. 

Harland

There you go.

THIRD:  TAKE START MOVING, TAKE A FIRST STEP, NO MATTER HOW SMALL

The third step that we’re going to cover today is start moving in that direction now with whatever you have.

My grandmother, when I was about seven years old, gave me a dollar.  She brought it in 10 dimes.  $1 in 10 dimes, laid them out on the table in front of me, pulled one dime across and says that’s going in church tomorrow. Okay.

She pulled another one across, and said that’s going in your savings account down at Barnett bank tomorrow.  You’re going to start saving now 10% of what you have.  You’ll thank me later.  And I thank my grandmother for getting me started at seven years old because the earlier you start the more you’re going to be able to be able to retire early.

Absolutely.

Mike

That’s right, the earliest dollars do work the hardest for you.

Harland

There you go.  Well this has been a good day today, what did we cover today?

SUMMARY

Mike

First of all we started with a review from last week: what FIRE is, Financial Independence Retire Early, where we want our passive income to be greater than expenses. And we talked about the difference between active and passive income.

And this week we talked about where do you want to be financially to enjoy FIRE. You know that we want our passive income to be greater than expenses, and then assess where you are today.  Look at our income, look at our expenses, and look at the assets we have to start with.

And then the third thing is start setting money aside today for investing and develop the discipline.

Harland

Yeah, so those are the three things you need to do in order to achieve Financial Independence starting today.

Next week we’ll come back in this series and look at the power of compounding.  That’s what makes it possible beyond your imagination, the power of compounding.

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