It seems like the path to FIRE always starts with a spark – a blog article, podcast, or video that triggers a binge of information. How to save, how to earn, how to invest, how to optimize every aspect of your life in the pursuit of shaving off the years until retirement.
The information, however, is not a magic bullet, even though it may appear that way. That’s because unless you’re starting off with a lot of money, have a very high income, and can significantly reduce expenses, it takes roughly a decade to achieve FIRE.
While it’s still significantly shorter than the conventional path to retirement, the new found awareness makes it feel like an eternity. The fervent search for more information doesn’t help either. You start to obsess about every dollar and count the hours at work until you make yourself miserable.
So what’s the best thing to do once you learn about FIRE?
What I mean is that once you set up automatic saving and investing, cut back on any spending that doesn’t spark joy, go back to living life. Otherwise you might as well watch water boil.
If there’s anything to do at all it’s figuring out how to make more money, whether that means climbing the corporate ladder switching careers, or starting a side hustle. That’s really the only pedal you have to speed up the path to FIRE once you’ve gotten started.
But even then don’t stress out about that if it’s going to kill you. Sustainability is key and it’s worse to burn yourself out than to be slow and steady. FIRE is like a diet. Good, consistent, maintainable habits will always give better results than sporadic “cleanses”. Even when you reach your target number, it’s not like you can let all your habits that got you there fall by the wayside. There’s a certain amount of maintenance required, so if you don’t like the journey you’re not going to like the destination.
Of course I’m saying all this because I’ve experienced it personally. The obsession, the burnout, and the realization — you don’t need to add sparks to a FIRE that’s already burning.
Thoreau’s Walden isn’t a FIRE book in the strictest sense, but it has many themes that relate to the FIRE movement. I never read it in school and I’ve seen it referenced time and time again by the community so I decided to give this 165-year-old book a chance and I’m glad I did.
I always thought that Walden was an example of how many principles of FIRE were mainstream in the past, but that couldn’t be further from the truth. Thoreau was considered a weird guy, his ideas were considered weird, and the FIRE community can learn a lot from his experience as a result.
Living below your means was never the norm and probably will never be. Even in the 1800s, Thoreau describes that most people spent what they earned and that most farmers didn’t own the land they farmed.
Society will always think that you are strange for pursuing FIRE. People thought that it was strange that a man would voluntarily move into a cabin in the woods, just like people will think that it’s strange for you to downsize your home or downgrade your car.
Detailed accounts of income and expenses will always be interesting. Just like how people were interested in how much it cost to build Thoreau’s cabin and pay for food, people will always be interested in money diaries and income reports.
It’s hard to separate FIRE from food. Thoreau advocates eating mostly vegetables to save on food costs and therefore reduce the amount he needs to earn.
Not everyone will want to live just like you and that’s fine. Thoreau tries to convince a neighboring Irish family that they should give up meat and butter in order to reduce their expenses, but they’re resistant to the idea.
Pursuing FIRE alone is one thing, but as a couple it’s hard if one person isn’t on board. In the interaction with the Irish family, the husband seems intrigued by Thoreau’s thoughts, but the wife isn’t convinced.
Check your privilege. You have advantages that allow you to pursue fire that others don’t. One of the main criticisms of Thoreau’s experiment is that he didn’t pay rent or own the land he lived on. His friend Ralph Waldo Emerson allowed him to live on the land for free.
Practice contentment. Thoreau both demonstrates and explains that it doesn’t take much to live a rich, full life.
The thing that irks me, however, is the one-sidedness of the article. The only examples presented in this article are 30-something millennials that receive support from their parents, or those that are not and thereby feel stuck.
What’s missing? How about showing some 30-somethings that aren’t supported, but are still able to “keep up” with their peers? And how about describing the choices they have made in order to do so? The omission of what I’m calling a “new minority” type of 30-something just perpetuates the idea that it’s impossible to get ahead without parental support and downplays the agency each individual has over their own personal finances.
While I’m not a 30-something yet and can’t claim to have never received “help” from my family after graduating college, I graduated debt-free because my need-based aid covered 100% of my costs and I am planning to purchase my own home in New York City this year without any help from my family, which I also help support financially. It has required considerable sacrifice to do so, but it’s possible.
This is also why I’m writing this blog. It’s not just a reminder to myself, but also to tell the story I think isn’t being told enough. Upward mobility is not straightforward these days, but it can still be achieved with ingenuity, sacrifice, and fortitude.
Thank you for reading and I hope that you find some encouragement while you’re here.
For those of you that are unfamiliar, these are unfiltered accounts of how people earn and spend their money. I love how much they reveal about a person, their life, and their values, no matter how much hand waving or rationalizing they do to explain certain purchases.
It’s also clear that I’m not the only one. In the past few years, there has been a profusion of blogs, articles, and videos (of mostly millennials) laying their finances bare for the world to see, which I think speaks to the demand for this type of content.
I’ve always wondered though, if there’s anything else that can be gleaned when looking at everything in aggregate. One of the richest collections of diaries is Refinery29’s Money Diaries series, which started a little over three years ago. Fortunately for me, a large portion of these diaries are written by those that live and work in the New York City area.
So, like any rational person, I decided to compile all the data from the diaries and do some analysis. It wasn’t an exact science though. I excluded some outliers like full time students and a couple at the high end (I’m looking at you, hedge fund managing director and real estate mogul) and did my best to split up the finances from diaries where finances were mixed.
Given that, these are some of the things I found interesting:
Older doesn’t mean wiser financially speaking. While salary generally rises with age, there doesn’t seem to be any correlation between age and what percentage of take home pay is spent on fixed expenses such as housing, transportation, subscriptions, etc.
Lifestyle inflation is real, but fixed expenses don’t increase in proportion to salary. It doesn’t look like discretionary expenses do either, but that’s hard to confirm since almost all of the diaries are only a week long.
You’re more likely to blow your budget for the week when you make less money. Even though that seems kind of obvious, I was surprised at how seldom diaries at the higher income levels went above their weekly disposable income ((Take Home Pay – Fixed Expenses) / 52 weeks) given the distribution of utilization of disposable incomes.
It’s easier to save when you make more money. Again, kind of obvious, but I think the interesting thing is how slowly the savings needle moves.
There doesn’t seem to be a heavy editorial hand in the Money Diary series. There’s a heavy tail distribution in terms of salary and utilization of weekly disposable income (defined above), which fits the general population, so it doesn’t look like they’re trying to sensationalize the series or spotlight a certain type of spending profile for the most part.
In addition, some interesting medians from the data set are:
Housing as a Percentage of Take Home Pay: 29.8%* (Assuming single filer taking standard deduction and single exemption depending on tax year)
After-Tax Fixed Expenses as a Percentage of Take Home Pay: 42.5%
Percentage of After-Tax Non-Fixed Income Spent: 94%
Projected Yearly Savings: $2,738* (Assuming that the one recorded week represents an average for the year)
If you made it this far, clearly you’re not bored by numbers and probably have a few questions about my methodology. That’s a good thing. I will be the first person to admit that this is not scientifically rigorous and should not be taken at face value and I’d love to hear your suggestions on how to improve this analysis. That said, I hope the following will explain the reasoning behind my decisions.
Who was excluded?
Anyone who was a full-time student because they represent a different kind of financial population in the series
The two diaries that were making over a million a year and both over the age of 35 because the sample sizes were so small at that end of the spectrum and not reflective of the general population. (Because I know that 100% of New Yorkers > 35 do not make at least a million dollars a year)
Anyone that didn’t work in New York City because even though Northern New Jersey and Long Island are close and also expensive, they’re still different enough from the rest of the sample group.
What about taxes?
For my own sanity, I applied the tax rates for the year in which the diary was published and assumed that everyone was filing single, taking the standard deduction, and one personal exemption if applicable in that year. I also assumed that diarists living outside the five boroughs did not have to pay any city income tax.
Why are you using take home pay?
Two reasons: because some millennials receive an allowance from family, although this was not as common as the media would like you to believe, and because of the different tax rates. The most common forms of familial support came in the form of no education debt, not contributing to a cell phone family plan, and not contributing to family entertainment subscriptions.
How is it fair to use one week of spending to extrapolate to an entire year?
It’s not, but given the fairly normal distribution, I felt that the median number would still provide some color. If you work at Mint or Personal Capital, I’d love to talk to you though.
What about purchases that are clearly once in a blue moon or later going to be reimbursed in some way?
Yes, I agree that those should be taken out and adjusted, but it seemed like very little additional clarity for a great amount of work. Volunteers welcome!
What about inflation?
Yes I thought about that too, but it’s three years of data. I didn’t adjust any of the calculations for inflation, but I’ll consider it for v2.
That’s it for now, but I’m planning on revising this data. If you have any suggestions, please leave a comment!
I never thought I would be saying this, but this year I’m going to budget.
I’ve always been of the option that if you’re pound wise, you can be penny foolish. For the most part it’s worked for me. I’ve never carried a balance on a credit card, always spent less than I earned, started saving for retirement with my first real paycheck, and am well on my way to financial independence.
But after reading a few year end spending recaps, I started to wonder exactly how much I spent last year. I couldn’t come up with an exact number because I had taken a break from Mint until recently. Fortunately, however, most of my spending is on my cards and I was able to come up with a rough total.
I spent $36,000 last year.
Besides rent and living expenses, this also included trips to Italy, Mexico, Los Angeles, New Orleans, and Hawaii. This probably doesn’t make any sense, but I was both pleasantly surprised that it wasn’t higher and disappointed that it wasn’t lower. I know that for a single guy living in NYC this is a reasonable amount to spend in a year, but I can’t shake the feeling that I could have been more thoughtful and intentional about my spending last year.
So how low can I go? I think the least I can spend is about $24,000 without becoming a complete hermit, but I’ll probably end up somewhere between that and last year’s spending.
And why am I doing this to myself? My hope is that by budgeting, I’ll be forced to think about if my spending is reflecting my values which have friends, family, and experiences coming before possessions. I’m sure some months will be harder than others, but I think this will also be good training for FIRE should I choose to pursue less lucrative endeavors once I reach financial independence.
I’m curious to hear what you think about my plan. Is it too aggressive? Am I in for a miserable year?
One of my favorite things about the new year is the resetting of contribution limits to tax-advantaged accounts. Very heartwarming, I know. Just like how my favorite part of turning 18 was opening a bank account in my own name, but that’s a story for another day.
As I was trying to figure out how I would fund these accounts over the course of the year, it got me thinking about if there’s a logical order in which to save, just like how we use PEMDAS, the order of operations in math.
So given these assumptions:
Matching > No Matching
Tax-Advantaged Accounts > Regular Accounts
Time in the Market > Timing the Market or Dollar Cost Averaging
Income – Expenses > Sum of All Account Contribution Limits
This is the rule of THUMB that I came up with:
Traditional (pre-tax) accounts: 401k, 403b, 457
Unless no retirement plan at you or your spouse’s work: Traditional IRA
Mega Backdoor Roth IRA
Backdoor Roth IRA
Of course, any additional savings can go towards other savings goals like an emergency fund, a downpayment on a house, or post-tax accounts for retirement.
And why the Mega Backdoor Roth IRA before the regular Backdoor Roth IRA? That’s because if it’s available to you at all, it’s only available through your employer. There’s always the chance that your employment situation might change in the middle of the year and that you lose access to this rare account. In addition, a Mega Backdoor Roth IRA can only be funded with deductions from your paycheck so the effective deadline for contributions is the end of the year, whereas a regular Backdoor Roth IRA can be funded until tax day of the following year. So don’t be sad that you didn’t strike the iron while it was hot!
This is not to say that you should feel bad if you don’t have access to some of these accounts or can’t max out the ones that you do have access to. I know that planning for and writing about this means that I’m privileged with both access to these accounts and the means to fund them. I know because I’ve had jobs without any tax-advantaged accounts or health insurance. I hope, regardless, that this information is useful in the future should you ever find yourself in the position to take advantage of these accounts.
That said, I’m curious to hear your thoughts on my personal rule of THUMB. Leave a comment and let me know what you think!