Historic Inflation – The most important # you need to know is 3.22%

So another finance piece today. I am not going to go through my normal disclaimer hopefully by now you understand you should be diligent about your finances and obtain information from multiple sources. I’m thankful you consider me one, today we are going to talk about inflation. Yes, its real, and it isn’t exclusive to one region we have global inflation. The numbers I will use in this post will be U.S. numbers but in my research it tracks, mostly, globally.

You are probably wondering what the 3.22% is, that is the historic average inflation rate over the last 108 years. That’s ON AVERAGE, which is important. We have years in there where we have 13.5% inflation (1980) so it’s really important to have good perspective here. Historic inflation isn’t as important as “life time” inflation. That metric is the inflation rate in YOUR life time. For me? Its 3.95%. None of the numbers I am throwing at you include 2022 which right now is approx. 8.5% (give or take). As it isn’t a full year of data we can’t use it for these purposes.

Here is a link to the historic chart I am using. So a few important things to remember.

  1. The distinction between historic and life time inflation rates.
  2. The likelihood of sustained inflation.
  3. Globalization

I distinguished the 1st item already, but items 2-3 are intertwined. We had a sustained period of high inflation in the U.S. from 1973 – 1983 (roughly) that’s a long time. That was in my life time, it might be yours too. What normally happens, and is happening now is wages increase as inflation increases but rarely at the same rate. As an example, it’s likely that in 2022 we will come in between 6-10% inflation for the year, it’s unlikely that your income increased by that same amount. The thing that is a killer about sustained inflation is multiple years where your income doesn’t match or exceed inflation = less wealth overall.

Inflation decreases your purchasing power.

You may make more but it doesn’t buy as much, basically. Globalization is a fairly new phenomenon in the inflation equation. In the 70-80’s it was far less then it is now. So what happens in one major country affects the global consumption and production metrics. If China can’t produce as much of X as it normally does, the price of X goes up, or inflates. Add in a pandemic here and there and well you get the picture.

There is only one sure fire way to combat inflation for you personally and that is increase your income by more than the current inflation rate. The problem is most can’t do that. So the second best way to combat inflation is to ensure your income and investments are increasing more than the average inflation rate in your life time. So for me, that means I need to increase my income and investments every year by 3.95%. Now that is just to remain as is, if I want to improve my financial situation (my ability to consume more) I need to increase my return by MORE THAN 3.95%.

Take a look at the link above and see what your life time inflation rate is. This is the minimum target you should be striving for in all of your investments and your income. Trying to figure it out monthly or on an annual is probably not going to work, but hey if you can make 8.5% in these markets I tip my hat to you. For now, shoot for 4% minimum, 6-8% would be ideal and reasonably attainable if you have investments.

Thanks for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

3 compensations factors that make companies great.

The great resignation marches on and in the U.S. unemployment is near record lows. Millions of people left the workforce due to the pandemic. Whether it was creating their own income streams or boomers retiring, there are a shortage of workers in the U.S. Now let’s be very clear here, the available jobs are not high end 6 figure salary roles. Sure there are some of those but nearly everyone has leveled up, so your traditional entry level positions are the ones that have the most openings presently.

Regardless of when you get a new job or if you are evaluating your current company there is one truism you always have to remember. Companies need you to perform tasks so they can make money. You wouldn’t be employed if you weren’t either generating income for the corporation, or supporting others who did. So in this sellers’ market (you the employee are the seller) we can now be even more selective of the places we want to work. There are 3 compensation factors that make companies great. This may not be in line with other lists you see out there but from an employee’s stand point, here they are.

Surviving 2020 & covid
Great, another list…..
  1. A robust retirement plan: This includes employer match, Roth and Traditional 401K/403B options. This should be managed through a large firm like a fidelity and the vesting time line is no longer than 3 years. Retirement planning is critical and most successful retirees in the modern era have created wealth through automatic withdrawals via their employer’s plan.
  • Comprehensive benefits: Health Insurance is obvious but you should have 3+ plans to choose from. Dental, LTD, STD, a 1-year life insurance of your salary. There should be A good PTO (Paid time off plan) that scales based on tenure. Every 5 years you should receive 1 additional week of PTO capping at 6 to 8. PTO should be one lump sum, vacation and sick and you get to manage it. Along with major federal holidays. This is where you really get value as this is part of your compensation package. It’s not just the annual salary, it’s the sum of the value of these “perks” as well.
  • Profit sharing: This is one of the rarest benefits you’re going to see out there. If you get into a company with this benefit you really lucked out. Most corporations keep their profits to make distributions to their shareholders. There is nothing wrong with that, they are paying you a salary and offering you benefits. It’s a fair exchange and one that has been the norm for decades. Profit sharing can come in all sorts of forms. Ideally what you get is if the company has a surplus to budget at the end of the year that amount is distributed to employees. Some managers are offered “profit sharing” of some form. I got quarterly performance bonuses based on budget performance in one role.

The 3 items listed above are in addition to your base salary. This is a sellers’ market and employees are now in a situation where they are empowered to create very good deals for themselves. THIS WILL NOT LAST FOREVER. Look, work isn’t meant to be easy. It’s likely you fall into one of two categories. You are either someone who truly loves what they do, or you work to obtain income so you can do the things you truly love.

Most of us fall into the latter category. Work is a means to get income to live life. The more perks you can get the better life becomes. Now is the time to look around, see what’s out there, measure your current work situation. Believe me if the situation was reversed and there was a surplus of workers your company would be looking to see if they could pay you less.

Thanks for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

A follow up to my post –  Commodities

So this is a requested post I received via email. The original post is here where I talked about commodities etc. As with any finance advice I give on this blog these are my opinions, I am not a financial advisor. The person emailing me acknowledged this and the spirit of the email was more along the lines of “Well what are you doing then?” for a portfolio.

I told the person I would use my email reply and post it here as well so others can see. I am not going to list the specific funds I use, again this isn’t a financial advisors blog. I am a finance professional yes but I am not a certified financial planner so keep that in mind.

First, I am 52 years old. I have been investing since 1992. The majority of my assets reside in my 401K that I have rolled over from successive companies over the years. I am also debt free. Now this is important because while I invested for years, most of those years was at a lower than normal investment rate as I took that money and used it to pay off my mortgage. Approx. 35% of my net worth is the equity of my house. 50% is in retirement accounts, 10% is in a brokerage account that is designed to produce dividends the balance is cash.

So how does this break out exactly?

  1. I have 6 months of my current monthly expenses sitting in a money market account that gets .5% interest. This is an emergency fund.
  • 70% of my retirement accounts I use the “bogle” strat. I use index funds with low fee’s and loads. All of these are long term investments and have provided me with stellar returns. The fund names aren’t critical as long as they track correctly to the index:
    • 75% into an S&P Index fund
    • 20% International
    • 5% bonds

All of the funds in item 2 are investments I have held for several years in some mutual fund for or another.

  • 20% of my retirement is in 2 aggressive growth mutual funds. These focus on small cap funds and I monitor this grouping very closely. I “flip” this 20% often when I make good returns and then shop for new funds in this category.
  • 10% of my retirement is in a precious metals and commodities mutual fund. I have had the same one for years now it’s OK. This is a hedge really but I wanted to be in different parts of the market so I got one fund that invests in several commodities.
  • Brokerage account: this is all about passive income. I invest in singular stocks and mutual funds that have a long term track record of paying dividends. I keep reinvesting the dividends into more shares. The goal here is to build a big enough foot print to provide a good quarterly payout that I will use to supplement my income in retirement. I have many investments here which cumulatively add up to a good chunk of change. However singularly aren’t much.
  • Cash: I have another 3-6 months of expenses sitting in a debit/eft/checking account. This is what I call my “living” account. I want a coffee it comes out of here, gas, groceries. This is where my salary is deposited every month and I disperse from here to my other accounts.

So this isn’t very complex. Most of my wealth is tied into index funds and the equity of my house. The house equity of course isn’t liquid I am sitting on it but having bought the home decades ago the appreciation of the house has made it worth a nice chunk of change and paying it off early meant I saved on interest payments.

As I age this break out will change. When I am 62 I plan to collect Social Security and stop working for a salary. Ideally I will continue to work for health benefits, we’ll see. At that time, I will be shifting the break out and consolidating many of the asset classes into more capital preservation friendly vehicles that generate interest income. Ideally CD rates will be higher, and if they are I will look into them.

CD’s will never outperform the market but the extremely low risk is very attractive as I start to get into my 70’s and enact my legacy planning (for kids and grandkids). Keeping in mind the whole time I will still be living and spending and generating some income.

Anyway, as requested that’s where I am at on my investment portfolio. Thanks for coming by and supporting my blog I really appreciate it.

Commodities – Should you invest?

For the first time in a long time we have inflation to the point where it is materially affecting multiple financial sectors. Bonus tip: Anytime oil prices rise, it affects pricing on nearly all consumer products. We also have the artificial inflation of the stock market due to interest rates being kept at historic low levels for over a decade. On top of that you had the pandemic that decreased production and you had governments stimulate with increase payments to individuals. These two factors alone cause inflation, less products and more money = product price increases.

Now before I get to far into this let me give you the normal disclaimer. I am a finance professional with 30 years of experience. These are my opinions based on years of observation, any decisions you make pertaining to your personal financial choices should be done so with a great deal of research beyond my blog posts.

Disclaimer out of the way, what does all of the reality of the first paragraph mean? It means commodities will increase. Oil, Precious metals, specific produce items wheat as an example. Does this mean they are a good investment? Yes, and no, first the no. Buying them now would break the basic principal of investing and wealth building (buy low sell high), you would be buying at a high, don’t do that.

Yes, because a diversified portfolio is a good thing. If you had gold in your portfolio at the start of the pandemic (3.1.20 roughly) it was trading at 1497.00 US per ounce. 2 years later? 1944.00 US per ounce that’s nearly a 30% return. Oil, wheat, Silver you can go figure it out, they are mostly up. The point here is you are seeing these items increase because the market is changing. The war in Ukraine effects commodities, specifically Wheat as Ukraine is a huge Wheat producer but what happens when markets change (with the many factors listed in this narrative) commodities tend to rise.

There is no sure thing in investing, its always a rollercoaster.

Ideally what you want to do is use the current financial climate as notice on how to diversify your portfolios going forward. Gold as an example, will come down. Should you go heavy into gold when it does? No, you should consider SOME gold though. 2-5% of your portfolio is what I recommend to family & friends buying at a low (I use 3-5 year price averages myself). Wheat will be another one that spikes soon, keep an eye on that.

Overall, commodities are a useful buttress for lower stock values. If you weren’t in commodities prior watch the prices in 2022 it’s going to be a good year to gauge your comfort level with commodities. Just like stocks it’s a gamble, but sometimes when you gamble you win and had you bought Gold (as an example) years ago and stayed with it, you would have a spectacular sell opportunity now to make some great gains.

Always be diligent when investing and don’t close your mind off to any specific sector of the markets. A diverse portfolio that takes a long term view on investments is prudent. Commodities are a big driver in markets (look at oil prices), ignoring them as investments isn’t the smart play. Nor is using a large % of your investing resources and putting that into commodities. It’s a sell position now. Take your gains if you have them and remember the simple phrase “buy low sell high” should always be paramount.

Source for Gold comparison:

Thank you for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

Finance – 3 tips to deal with this downturn

Inflation is real, gas prices in the U.S. will be 4.00 a gallon soon. Russia has invaded Ukraine; jobless claims rose in January. We are in a down turn period, these happen regularly. Is this a market correction? Partially, meaning a lot of the market has been inflated due to low interest rates so high amounts of capital were parked in stocks as CD rates were so low. The fed hasn’t raised rates enough to pull capital out so a true “correction” isn’t in play IMHO.

Covid shutdowns dramatically impacted the supply chain. On top of that governments subsidized citizens with money so you have the perfect storm of more cash in the economy and less goods. This always equals inflation when this occurs. The question becomes how long does it last? My initial guess was by the end of 2022 things would begin to even out. The mask mandates and locks downs are winding down, even with them in place people got covid. We have a war now, that’s a new circumstance.

I think this will go the same way the Crimea annexation went. A lot of saber rattling, sanctions and the people of Ukraine suffer. Simply put, Ukraine is not part of NATO and beyond the current president’s son’s income, there are no strategic interests of the U.S. at stake. It’s by no means a good situation but the predictions of WW3 and doom I think are very exaggerated (but not impossible). So we have a lot factors in play here, 2022 is going to be a down year economically. As I am writing this I think the market is down approx. 9.5% for the year and we aren’t finished with the 1st qtr. yet.

War sucks

How do you deal with it? I am going to give you 3 quick tips below that will help you navigate this down turn.

  1. Emergency fund: This should normally be 3-6 months of expenses; you now default it to 6. This is to help you weather inflation. If an emergency happens it’s going to cost, you more now than it did in prior years. Beef up your cushion.
  2. Secure your income sources: Down turns affect companies as well and if this extends to long (2 full qtr.’s) many companies will be looking to decrease expenses which usually means layoffs. Now is the time to make yourself as valuable as possible to your current employer. You should additionally be focusing on alternative income sources (side hustles) and if you had an idea now is the time to get it rolling.
  3. Hyper budget: This is a term used to really control spending. When things are good spending isn’t a big deal unless it’s a ridiculous expense. You should really be watching your budget closely and being very precise in your spending habits. This isn’t a long term effort here but for the next qtr. (3 months) really be sensitive to your spending habits and cut back where you can.

This slide will turn around, they always do. It’s not a matter of if it’s a matter of when. The only scenario where this continues to get worse and doesn’t improve is if the war in Ukraine expands. If Russia invades a NATO country, then all bets are off. You’re going to have much larger problems then a 6 month down cycle if that happens. For now, based on my experience I am betting on the side of a quick conflict and occupation and the damage economically to everyone outside of Ukraine subsiding in 6 months max.

That sucks for people in Ukraine, I don’t want this to seem unsympathetic to their plight but this is a finance piece not a political one. The U.S. every 20-30 years engages in a similar war (50’s Korea, 70’ Vietnam, 80’s Panama, 90’s Iraq, 2000 Afghanistan) so you have those historical markers to gauge the financial impact. In all cases markets and economic indicators dipped, commodities increased and the world has economic down turns for 2-6 months before things leveled off. I see that happening here, our economic issues are more than Ukraine. We were due for a correction, right now we are nearly at a -10% market for 2022 I think this trend will continue through the summer.

Thank you for stopping by and supporting my blog. Want to see another post like this one? Click here.

How to navigate the stock market roller coaster

The markets have been volatile for the last week or so. Inflation, Ukraine, Omicron lots of factors go into this. Let me say clearly that I am a finance professional with over 30 years of experience. I am not a financial advisor and anything you see here is my opinion only. Have I seen something like this before? Yes, I have. Markets have crashed many times in the last 30 years. While I wasn’t investing at the time I am old enough to remember inflation in the 70’s. Many of you are seeing inflation for the first time and are shocked at its impact.

First let me say that I think the markets have been artificially inflated for decades now due to U.S. monetary policy. Keeping the fed rate so low for so long has forced many investors into the market that wouldn’t have necessarily gone in before. Getting .25 of a % of interest at a bank is a killer, even the most cautious investors can’t stomach that kind of return. So right off the bat I think there is a 10-15% inflation of the market (approx. 3-4K points in the dow) due to fed policy, likely more.

Now it’s also true that over the last few decades many companies have created immense wealth and broadened their services. The market isn’t a complete illusion, these companies have value based on market share and branding. So how do you navigate the stock market roller coaster?

You don’t.

Am I contagious?
You don’t ? Is that the best this guy can do?

I know, not the complex detailed answer you wanted but the key to wealth building is consistent investing. If you jump every time there is a dip in the market you will not make a lot of money. Statistically the market normally returns approx. 8% a year. This link shows you the statistical return break down for 147 years…. Yes, we have that much data.

If you want the simple facts here it is: 101 years shows a positive return, 46 years showed a negative return. So statistically the chances of you suffering through concurrent negative years is low, the market usually bounced back. Additionally, if you continued to invest in those down years purchasing your assets at a lower price you balance out the actual cost of your portfolio to you when purchasing in high years.

The trick has been and always will be, when you need to convert the assets to usable currencies (when you sell). If you need to sell now, you are most likely going to take a loss. Now only you know when your sell date is. Mine is approx. 10 years. In the next 10 years I will begin to take my gains with sell offs and move my investments into more principal friendly investments. The older you get the less window you have for the sell, always be mindful of when you will need the money.

So you don’t do anything unless you are at a point you need the money. Otherwise stick with your investment plan. The likelihood of a multiyear down cycle is very low (it is possible). My instinct tells me 2022 is going to be a highly volatile year and it will not be for the faint of heart for investors. Many people can’t take the risk, it’s too stressful. I completely understand. For me, this is a buy opportunity and I am happy to keep accumulating assets at a lower price now to balance out the assets I have that were purchased in peak markets.

Thank you for coming by and supporting my blog I really appreciate it. Want to see another post like this one?  Click here.

Advanced Finance Tip: Annual Gift Tax Exclusion

DISCLAIMER: Any financial advice I give on this blog is my opinion based on 30 years of working as a finance professional. Before making any financial decision do as much research as you can to make an informed decision.

So in the U.S. we have an extremely complicated tax code, its frankly ridiculous but that’s another blog post entirely. One of the issues the more fortunate of us face is how do we leave our money to our offspring without getting killed on taxes. This doesn’t apply exclusively to the rich either. Middle class Americans who have any amount of money face taxation on their net assets. The older you get the less you actually need your assets to survive. Specifically, there comes a point in your life where you have enough money that generates income that you will not have to compromise your principal.

Again, this isn’t for everyone… Many people live paycheck to paycheck but there are some of us who have a paid for house, a good chunk of change in our 401K’s and are debt free. We aren’t multi-millionaires but we do have money in excess of necessities. You may ask yourself “well Karac, why can’t I just spend it on all those things I wanted to do in retirement?” I would say to you “what things?”

There is this myth that once you retire there is glut of items or travel that you are going to purchase. You likely aren’t going to buy a new car, a 2nd house, travel 1st class. I mean you may, but average middle class people don’t do this regularly in retirement. Once in a while? Yes. So we are sitting on cash, when we die you aren’t going to care what your 401K balance is, your heir’s or the government WILL care because they benefit from it.

Decades later, they will pay taxes on their inheritance.

This is when all sorts of tax issues can happen and depending on the family dynamic horrible drama. There is an option and that is gifting money to your heirs now prior to your death. In 2021 the U.S. allows for a Gift Tax Exclusion of 15K per recipient. So if you had 150K you could gift 15K to 10 people and not have any tax implications. There is a life time limit to how much you can gift, its 11.7 mil which most of us are never going to hit.

So the tip: When you are starting your retirement planning, it may be prudent to calculate annual gifts to your heirs. It’s likely that the money now will help them more than money later as they can then take the gift and use it to supplement their current income. 15K is a lot of money. If you retire at 62 and live the average age (in the U.S.) of 82-84 (let’s say 83) that’s 21 years. 15K a year for 21 years = $315,000.00 that your heirs are not going to inherit and pay associated taxes on.

Again this is an advanced finance/retirement tip. You should be doing a lot of research and planning when you approach retirement. For a good article on Gift’s and Gift Taxes check out the article here.

Thanks so much for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

Finance Tip: Commercial real estate vs residential real estate

Another financial tip post for the moderate to advanced investor. Normal disclaimer: This is my personal opinion based on decades of work in the finance industry. The intent of this post is to give you my opinions, observations and insights into my experiences to help you gather a more robust knowledge base to help you make good financial decisions.

We are in a hot real-estate market right now. Historically low interest rates that have been sustained for decades by the federal reserve have (IMHO) negatively impacted housing prices. That’s issue 1, issue 2 is Covid and the rental issues we saw over the last few years. Depending on where you lived there were eviction moratoriums, rent relief, on and on.

The long and short of it is, it’s a sellers’ market. Houses are going for premium prices and it’s likely that on the next down cycle those houses will decrease in value leaving many new home owners in an upside down equity position. We have seen this many times in the past, housing goes up and down but over a 30-year period you will likely make money on the investment. The other issue there is many people aren’t spending 30 years in a residence anymore.

As an investor real-estate is a great investment because the down turns normally don’t last too long and even when your equity position has down cycled the asset is still generating income via rent. Land is an entirely different discussion as the asset value is really predicated on the anticipation of are growth so I am not going into that here at all. Residential vs Commercial though is a very important discussion and when (and if) you are at the point in your investing life that you want to get into real-estate its crucial to decide which way you want to go.

In a market like the one we have now, if you had a portfolio of residential properties you could flip it and make a killing, again it’s a sellers’ market. The issue with residential properties is, and always will be the landlord tenant relationship. Flipping houses is one thing, that in my mind is a commercial endeavor you are never renting this space you are purchasing an asset and reselling the asset. Residential real estate is a headache because you have tenants.

The housing market is on fire, buy low, sell high….

Of course you have steady income via rent, assuming they pay of course. The downside is you are trusting your asset to people whom are using the space to live. Unlike a commercial property where your tenants are using the space to generate income.

I bolded the above because it is the lynch pin in the advice. How people live has so many variables we can’t discuss them all in one post. As a landlord you are beholden to their lifestyle, they could be wonderful and have the same moral compass you do, or they may not. The worst part of residential real estate is when you sell (if you do) the residential value isn’t simply the location of the asset but how the asset was maintained and other residential locations in that area.

Commercial property? Its highly likely that a commercial renter is going to do their best to maintain and in some cases upgrade the property to make sure they can generate income from their rental investment. The residential tenant has no income potential from your condo, sure their quality of home life is impacted but they go elsewhere to get money to live. The Commercial tenant relies on your property to generate income so they can live their life.

Its logical then to conclude your best possible income outcome is from commercial property. They are more expensive but you are renting (leasing) your asset to someone else who has in their best interest to maintain and maximize your property so they make money. The lease payments come in every month, the property is maintained, the tenant makes money. Everyone is happy and your asset is much more secure.

The residential property? Maybe you got lucky and got a renter who cares. Maybe you didn’t. Anytime something happens at the residential property you have to fix it. The commercial property? They will likely do it and ask for a credit. Residential, you have to take care of it and that time cost is immeasurable. At the end of the day, Commercial properties are less headache and higher income potential due to less time investment required by the landlord.

Today’s real-estate market is hot and residential properties are through the roof. That 3 store strip mall that services those residential properties? It’s always there, it’s always got traffic regardless of how much houses cost.

Thanks for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

Advanced finance tip – Aristocrat stocks

As I embark on this post I want to remind everyone that any financial advice you read here is my opinion. You should always do your due diligence when it comes to your personal finance. Talk to as many people as possible, read as much as possible and get educated. On this blog you can find many basic finance tips that are basic and require very little in the way of finance knowledge they are common sense based.

This tip is common sense based to, but it is a more advanced approach to accumulating income. Aristocrat stocks is a term used for companies who pay out dividends, with two very important distinctions.

  1. A company is a dividend aristocrat if it increases the dividend it pays to shareholders for at least 25 straight years.
  2. A dividend aristocrat must also be a member of the S&P 500, and some investors may add additional screening criteria.

Source data https://www.investopedia.com/terms/d/dividend-aristocrat.asp

Compounding interest over time is the secret sauce to increased wealth.

The first distinction is the most important, it increases its dividend payouts for at least 25 years straight. These are companies like McDonalds, Exxon, IBM, Walmart, all huge corporations with decades of a track record of sales and growth. These are expensive stocks, they are blue chips, they are some of the most cash flush companies in the world. Some of these companies’ net sales in a year are greater than many countries GDP.

Thus the title “Aristocrat”. So what does this mean for you? As you move into a more comfortable space with your finances you will come to a point where you will want to generate income. Stock growth in of itself isn’t income until you sell the security. Dividends however are payouts you get for just owning the stock. Now why Aristocrat stocks are a “thing” now (they always were, but you see it more now) is due to the fact that interest rates have been so low for decades you cannot earn decent income from banks.

To put it in context, in the 1990’s your range on 6-month Certificate of Deposit was 8.62% – 3.53%. Now that’s a 5% range which is significant. A 6-month CD now? Good luck getting more than .5%. So of course investors have looked elsewhere for securities which gave you a guaranteed return. Believe me if CD rates were 3% or higher we would be discussing that. So we turn to aristocrat stocks. Even during economic down turns, we know places like Walmart, Apple etc. aren’t going to go out of business they are too big.

So investing in single stocks is dangerous, the market could take a down turn and the actual PRICE PER SHARE might go down. In that instance you may actually have a loss of value but you will still get a dividend. Remember Aristocrat stocks are a great means to getting guaranteed income. We used to be able to get this income from CD’s and saving accounts. The downside to this is, many people are in the stock market hence why it is so bloated. Ideally we get back to a reasonable interest rate that enables a good asset mix.

Thank you for coming by and supporting my blog I really appreciate it. Want to see another post like this? Click here.

Couple of quick thoughts on “FIRE”

FIRE = Financial independence retire early. It is one of the newer concepts in the finance world and the practioner of it have some amazing stories, many are complete successes. Make no mistake about it, this is an extreme practice in the sense that your goal is to save as much as possible as fast as possible to achieve enough capital to generate income that enables you to retire early. Most of us have been trained by the media, government and financial professionals that you want to work until you’re in your 60’s then retire.

FIRE looks at those principals and proposes “Why not retire at 35 and take back 25 years of my time?” It’s a great concept and If done correctly is absolutely viable and something everyone should strive for. The issue is how do you come to a point where you are able to save 50-75% of your income? That’s essentially the range you’re going to have to hit to achieve this goal to retire in your 30’s, depending of course on your income year over year but that range is generally accepted in the FIRE movement.

What does that actually look like?

  1. No vacations
  2. Cheapest food possible
  3. Second hand clothes
  4. Used cars
  5. Cheapest rent possible
  6. Minimum utilities (no cable, no Wi-Fi)
I’m begging you, no more lists….

To list a few. See this is the hardest part and it’s something a lot of the FIRE sites don’t go into too much detail on. The fact is you have to have extreme discipline and sacrifice for a short to mid amount of time to achieve the long term goal. 10 years of living a minimalist life while accumulating as much income as possible while everyone else lives life? That takes a unique person to pull off but the payoff is what makes it all worth it. Imagine for a moment you have accumulated 400-800K thousand in savings via investments whatever by 35 and have no debt?

Could you live on that for 40 years? Yes, you probably could. You would not be leading an extravagant life style though. New Lexus? Nope. Vacation homes? Not likely. European trips once a year? Probably not. If you invested your money well and the markets return their historic averages which is between 8-10% on a 600K nest egg you would be generating between 45-60K a year (estimated).

That would all be passive income, you wouldn’t be working and you would have the benefit of being able to do whatever you want with your time. FIRE is a very unique nuanced movement it does work, you can do this, but it takes the right person to pull off. I admire the people that have done this, I didn’t I took a more traditional route and now in my 50’s I have a great financial situation but I’m 20 years removed from many of the FIRE practioner. I could probably retire now but that would mean my kids would have to pay their own educations which isn’t horrific, I mean I did it….

Maybe FIRE is right for you, I don’t know. If you really want to retire early you have to start working on it ASAP. Generally, the best way to accumulate wealth is to be debt free so all of your income you generate is not sent to someone else. Simply put, anything you can’t pay for outright you can’t afford and “payments” are giving someone else money so you can have something you can’t afford. You need to get out of that cycle ASAP and stop sending other people your income. Once that happens all your income can be used to generate more income and build your wealth profile. It piles up fast, but it remains stagnant if you do nothing.

Thanks for coming by and supporting my blog I appreciate it. Want to see another post like this one? Click here