The Personal Finance Podcast - The 5 Levels of FIRE (Coast, Lean, FI, Chubby, Fat)

Starting point is 00:00:00 On this episode of the Personal Finance Podcast, the five levels of fire and which ones you need to hit. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew, founder of MasterMoney.com. And today on the Personal Finance Podcast, we're going to be diving into the five levels of fire. If you guys have any questions, make sure you join the Master Money newsletter by going to Master Money. Money.co slash newsletter. And don't forget to follow us on Apple Podcast, Spotify, YouTube, or whatever podcast player, you love listening to this podcast on. And if you want to help out the show, consider leaving a five-star rating and review on Apple Podcast,

Starting point is 00:00:49 Spotify, or your favorite podcast player. And by the way, quick housekeeping, if you make over $100,000 in household income per year and you want to work with me one-on-one, shoot me an email and let me know. And we'll get you set up with an application to see if you are the right fit. All right, fit. Let's dive into today's episode. So the first thing I want to talk through is that I want you to think about financial independence.

Starting point is 00:01:11 And I want you to think about this in five different levels, meaning that you can do this in a way where you plan out your financial independence and you do this at various levels. So for a lot of you out there right now, we're listening to this podcast and you're like, I am sick and tired of having to go to work every single day or having to go and drive through traffic, go listen to a boss that I don't really like. I have to sit in this cubicle I absolutely hate. I have to go to this job site that I cannot stand. I have to work at this restaurant that I really don't want to be working at.

Starting point is 00:01:41 If that's you, I want to show you something that is absolutely going to change your life. If you have never heard a fire, which stands for financial independence, retire early, then I want you to understand how this is one of the most powerful things that you will level or understand. This can mean leaving a job that you hate. If you do not like the job you are currently at, financial freedom is the way. way to solve that problem. Your money can solve so many of your problems in your life that you don't even realize. Many people feel as though, oh, people who pursue money or pursue wealth, those are just greedy people. No, we are trying to pursue the best possible life so that we can live the life that we actually

Starting point is 00:02:18 want. This can mean that you can work when you want to. Maybe you just want to be able to build that business that you love or you want to work in a job that pays less, but you enjoy more. Well, financial independence can allow you to do that. Maybe you want to spend some more time with your kids. guess what? This life flies by. And every single day that you wait to build wealth is a day that you don't get to spend with family members, friends, or people that you actually want to spend time with. And the longer that you wait, the longer that you make those random purchases or those big splurges that don't really fit your values, the longer it's going to take you before you can be financially independent. And that is the last thing I want for every single one of you. I want to motivate you right now for you to understand. You can do this. This is not a someday thing. This is something that you can do right now. Maybe you want to travel for a month or two months or three months. Maybe you want to hike the French Alps. Well, if you want to go and do an excursion in the French Alps, the time is now.

Starting point is 00:03:14 Waiting until you're 70 years old when you can't really walk or hike anymore is not worth your time and energy to do whatsoever. Maybe you want to take care of aging parents. Your parents don't have a lot of time left. And so you feel as though, no, I want to make sure that I am there for them. They were there for me. I want to be there for them and have the ability to be able to do that. or maybe you want to move somewhere that you've always wanted to live. Maybe you wanted to move locations to a higher cost of living area.

Starting point is 00:03:39 Maybe you want to move locations to a lower cost of living area. You've lived in the city your whole life and you want to move out to the country. These are all great reasons to pursue financial independence. But what I really want you to realize is that it gets you back your most valuable asset with your time. Your time to do what you want, with whom you want, when you want. And that, my friends, is the most powerful thing that you can do of all. See, money is a tool. It's a tool to get you what you want out of life.

Starting point is 00:04:05 But first thing we need to do is we need to understand financial independence and we need to understand how this works. Now, one misconception I think a lot of people have is the acronym is fire. Financial independence retire early. And so they feel as though, well, if I retire early, I'm going to be sitting on a beach somewhere doing nothing all day. How am I going to spend my time? No. For many people who pursue fire, financial independence, many of us are pursuing it so that we can do things that we actually love. You can do work that you actually love.

Starting point is 00:04:30 give back to cause as you actually believe in, start that business you always wanted to start. And it gives you the ability to have flexibility in life. If you want your life back, if you want your time back, then financial independence is the only way. Otherwise, you're going to be working for someone for the rest of your life. Borrower is a slave to the lender. You're going to be borrowing money to go pay for a car. You're going to be borrowing money so you can go have a house. You're going to be borrowing money so you can do all these different things.

Starting point is 00:04:54 But financial independence is going to solve that problem for you. And once you understand the math, once you understand how this works, how this works, this is going to unlock an entire different situation for you long term. So first, I want you to understand the math behind this. So without further ado, let's get into it. So for those of you who don't know, we're going to talk about the 25x rule really quick here. Long time listeners know what the 25x rule is, but I want you to understand the math behind financial independence so that when we go through these different stages, when we go through these different levels, you understand how we got there.

Starting point is 00:05:31 Okay. So the 25x rule states this. Take the amount of money that you want to spend a retirement and multiply it by 25. That's how much you need to be invested to be able to walk away from your job and be financially free. And this is a really, really powerful place to be. Because once you get to this point in time, you have the opportunity to do a lot of really cool things. So let's talk about this for a second. Okay. First is if you want to spend $40,000 per year in retirement, then you need to have $1 million invested. That's the quick, easy, dirty math. Every million dollars that you have invested means that you could draw down $40,000 per year.

Starting point is 00:06:10 Now, what is the math behind that? That's something called the 4% rule. The 4% states that you can withdraw 4% every single year from your portfolio and preserve your wealth. Now, the studies that did this is pretty conservative. And in fact, I would consider 4% to be a conservative number. You can probably withdraw more than that. A lot of data has come out as of recent.

Starting point is 00:06:29 and in fact the founder of the 4% rule actually came out with a new book. His name is Bill Banging, and he came out with a new book that kind of states, hey, you can actually withdraw more like 4.8, 4.9% every single year. You can get a lot closer to 5% than we originally anticipated. But that's because we had really good market conditions over the course of the last 20 years, and we have seen a lot of growth within the economy. And so because of this, the 4% rule is a pretty conservative rule, especially if you're retiring early.

Starting point is 00:06:55 You may even want to dial it back slightly more than that if you're going to retire Lean FI or if you're going to retire early. And so I want you to start to think through this. If you want to spend $80,000 per year, you need $2 million. 120, you need $3 million. If you want to spend $200K per year, you need $5 million. So these are just rough, dirty back of the napkin math. There's a lot of other nuances that come into play,

Starting point is 00:07:15 things like your health insurance, things like your Social Security, if you get a pension, all of those will come into play in a second. But that's the back of the napkin math. Now, the 4% rule, you can look up Bill Bangin's study. You can look up the Trinity study to solidify that, especially if you're someone who wants to trust but verify. I want you to go and do some research on that because they looked at 30-year retirements and those portfolios show that they are preserved throughout that time frame.

Starting point is 00:07:38 They had conservative portfolios over that time frame and so this is something I think is really, really important. Now, your retirement length is going to matter. So if you are going to retire for 50, 60 or 70 years, I'd probably even conservatively dial that back a little bit more. I think you could probably get away with 4%. But even going down to 3.5% or 3% in the first couple of years is going to help preserve your portfolio long term. It's really, really important to think through that. Secondly, is understanding your tax situation when you're running these numbers. $80,000 in spend may require more than $80,000 worth withdrawals because of your tax situation. So you need to understand where you are tax-wise. And you need to understand your asset allocation,

Starting point is 00:08:17 meaning how much you're building in stocks, bonds, all those different things. But the biggest thing people miss is if you retire early, you need to plan in health care. Health care is very expensive in this country. And if your employer has been paying the majority of your health care over the course of the last few decades, you need to understand how expensive it can be. So you want to make sure that you are factoring that in and factoring in flexibility as well. Now, I'm going to show you how to factor in flexibility once you get to the point in time where you're lean five, which is going to be stage two here. But I'm going to show you how to factor in some flexibility, whereas if you need to, you can add in flexibility and it'll be something that's really cool for you. Okay. So without further ado,

Starting point is 00:08:57 I want to talk through the five levels of fire. And I want to talk through this where you can see where you are and what your goals are. You don't have to go through all five of these levels, but some of these are going to have to go through in order to be financially independent. So that further ado, let's dive in. If you've been listening to this show for a while, you know it's not just me anymore. It takes a great team behind the scenes to make everything happen. And if I had to hire someone tomorrow, I'd want someone who could jump right in and make an impact. That's why I'd use Indeed Sponsored Jobs. When workplace chaos hits, Indeed Sponsored Jobs helps you reach qualified candidates faster. Your job gets boosted in search results, so you're spending less time searching and more time interviewing the right people. Plus, you only pay for results, which I absolutely love. Sponsored jobs posted directly on Indeed are 95%, more likely to report a higher than non-sponsored posts. That's a huge advantage when you're trying to grow your business. Spendendendend a less time searching and more time actually interviewing candidates who check all of your boxes. Less dress, less time, more results. When you need the right person to cut through the chaos, this is the job

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Starting point is 00:12:00 We actually just did an entire episode on this. So I want you to go back and listen to that episode if you haven't heard it yet. But this is Coastfire. So Coast Fire is level one of the five levels of fire, meaning this should be your first goal when you're trying to achieve financial independence. Now, for those of you who don't know what Coast Fire is, this means that you have saved and accumulated enough money where you can say. stop investing and compound interest will take over and that amount of money will grow into your

Starting point is 00:12:28 retirement goal by whatever age you choose. Let me give an example of this to kind of bring this home, okay? Let's say, for example, you're 35 years old and you've accumulated a substantial portfolio. And so you go in and you say, hey, if you leave it invested until age 65, you're projected to have enough for retirement. So let's say you have $250,000 invest in your age 35. It's growing at 7% every single year. well, by the time you turn age 65, you're going to have $1.9 million invested. So if that will be something that covers your expenses without adding another dollar, then you are CoastFi, meaning all you have to worry about going forward is covering your living expenses. You don't have to worry about saving and investing moving forward.

Starting point is 00:13:09 And so CoastFi is one of those things where you try to save, you try to invest as much as you possibly can, as early as you possibly can, build up this nest egg so that you don't have to continue saving and investing if you don't want to. Instead, that portfolio will grow at a 6, 7, 8, 9, 10% rate of return over the course in the next 10, 20, 30 years, and then all of a sudden by the time you reach your projected retirement age, then you will have enough money on hand. And so there's a lot of really cool things that Coast Phi unlocks that allows you to have freedom.

Starting point is 00:13:41 Now, I want you to reach this as early as you possibly can. The reason for this is it removes some of the stress and anxiety that you're going to have around your money. You don't have to stress as much about money. or you don't have to stress as much about making sure that you're hitting your retirement goals because worst case scenario, you already hit your Coast FI number and that portfolio is going to continue to grow into the number that you actually wanted to grow into. So you don't have to stress them like, I don't know if I'm going to hit my retirement number.

Starting point is 00:14:07 Yes, you already have done so by reaching Coast Fy. So a lot of my folks in your 20s or your 30s or even your 40s, if you're trying to get there as fast as you possibly can, getting to Coast FI first should be the first level that you're going for. That should be your first target to know you're on pace to reach financial independence. Because worst case scenario, everything could crash and burn. But as long as you protect that portfolio, that portfolio can grow into what you need to grow into. Now, what does COESFI allow you to do? It gives you some freedom. It gives you some flexibility. It allows you to stop chasing every single promotion. If you feel as though, if I keep taking on these promotions, I'm going to be

Starting point is 00:14:44 working 80 hours every single week. I'm going to be working for bosses that I hate. I'm going to be doing stuff I don't like to do anymore. You don't have to chase those promotions anymore if you reach CoastFi because it gives you the freedom and flexibility to take less pay so that you can take some dollars and just cover your living expenses. Now, maybe asking yourself, Andrew, would you reach CoastFi and just stop investing? Personally, I would not, but my personality would never let me do that. I love investing. But B, I also just like to have added security layers and added security measures. So if you do like your job and you feel as though you're going to be working at your job for 60 years you hit Coast Fye and you feel as though you want to stop, you can do that, but just start to

Starting point is 00:15:21 maybe add in a little bit every single year. Make sure you get that 401k match, making sure that you get maxing out of Roth IRA or something like that. I still believe in doing things like that just to make sure you're outpacing inflation and staying on track. So it's really, really important to do that. But maybe you want to take Fridays off. You want to work four days a week and that's going to cover your living expenses. Coast FI allows you to do that. Maybe you're like, hey, I've been working in the corporate environment forever, but my passion is teaching. And I would love to, you know, teach science to high school students. Well, if that's you and you want to reinvigorate, you know, science into high school students or reinvigorate, you know, personal finance into high school

Starting point is 00:15:58 students, that's another great example, then you can absolutely do something like that. You can make a career move where you're going to make less money, but it's something that you love to do. Maybe you want to start your own business and you're like, okay, once I get my retirement covered, if I can find a business that can at least cover my living expenses, I'm golden. I'm going to be a okay and I can start a business and something that I absolutely love. That's another opportunity that you have. Maybe you want to spend some more time raising your kids. Maybe you want to work three days a week, four days a week, and you want to spend the rest of the time with your kids. Maybe you want to take summers off so you could spend them with your kids. Maybe you just want to have more flexibility

Starting point is 00:16:32 and have the ability to be able to go out and do things so you don't miss these most valuable and precious years with your kids. Coast FI allows you do that too. And as you can see, what this unlocks for you is this unlocks a freedom that you did not once have. It unlocks the potential to really take advantage of this life, this one life that we have in place. Maybe you just want to leave corporate America and you're like, I'm sick of this. I'm going to go work for a nonprofit. I'm going to make 50 grand less per year, but I'm going to be happy and I'm going to enjoy this and I'm going to have some fun. Or maybe you're like, no, I love yoga.

Starting point is 00:17:08 I love Pilates. I want to be a Pilates teacher. This allows you to do things like that. and take a lower paying dream job. But also, it puts you on the path to a couple of different things. It puts you on the path to having the ability to maybe be barista fire, where you reduce the overall hours. Maybe you have that money on hand.

Starting point is 00:17:27 But you're like, I would rather work at a coffee shop than be in this cubicle. And so I'm going to work at a coffee shop at Starbucks for 20 hours per week, get my health insurance. And that's going to cover my living expenses. And my portfolio is going to grow on its own by itself over the course of the next couple of years. And hey, I'm working 20 hours per week. Companies like Starbucks give you benefits like a 401k match that allow you to still build for retirement without having to worry much whatsoever. And so you have the ability to start to add in some layers of financial independence that will be really, really cool.

Starting point is 00:17:56 Now, we have a full episode, by the way, on barista fire, which is kind of in between this and the next level that I want you to think through. Because once you start to hit Coast Fire, you really do have some exemptions. Another great example of this is I have a friend who really loves fishing. All they want to do is fish, and they want to spend their time in the water, they love being on the water. And they said, hey, actually, I want to go and be a fishing captain. I want to spend some time taking people out in the water and fishing. And I don't know how much money I can make off this. I already have a boat on hand.

Starting point is 00:18:25 But I know that every time I take people out, it's going to be about $750 to $1,000 is what the day is going to bring. And I am going to see if I can make this work where they reached Coast Fye and then they had the ability to go out and become a fishing captain. And they're thriving doing that, but they would have never taken that risk in left corporate America if they did not have CoastFi in place first. Because you got to take care of your retirement. You got to take care of your future you. You got to give yourself the ability to have this freedom. And if you don't do it early, and if you don't do it often, then you can do it later on in life and start to focus on things like Coastfire. So this is why I want this to be your number one goal.

Starting point is 00:19:03 This is level one that I want you to try to achieve. Then if you decide, okay, I can't do this much longer, but I do want to. be barista fire, meaning you take a part-time job that covers your expenses and something that you love, and the rest of it is a-okay and it's covered by your portfolio, then you can do that. But this is the stepping stone for every other layer of fire is making sure that you are Coast-Fi. So I want everybody to think through this. I want you to think through the opportunity of Coastfire. Let me know down below, if you are.

Starting point is 00:19:31 There's a bunch of Coast Fire calculators online. We just actually created one in Master Money Academy from a bunch of feedback from members on all the other Coast Fire calculators that are out there and the ones they liked and the ones that they didn't like. We created one for Master Money Academy members. That's really cool. And so it's one of those things that I think for many of you out there. If you are going to try to achieve this, run the numbers, you may already be Coast Phi and don't

Starting point is 00:19:50 even realize it. And then you could start to think about Level 2, which is Lean Fire. Now LeanFi is something that hits close to home because LeanFi was my first financial independent school. And when I was introduced to the fire movement, I didn't know about Coast Phi yet. But I understood Lean 5 pretty, pretty specifically. And there was this blog I read, many longtime listeners know, called Mr. Money Mustache, where he would go through and he became Lean 5 by the age of 29 or 30, if I remember correctly.

Starting point is 00:20:23 And he lived this life where while he was working, he would bike every day to work. He would come home and bike home to work. He didn't really ever use his car because he didn't want to waste money on gas. Then he would build and fix things in his house so he didn't have to pay money for, you know, a handy person. or he could save a lot of money and he developed all these different skills. And he worked on increasing his income so that he could retire as fast as he possibly could. And the math worked in his favor where he was trying to retire by the age of 30 so that he could live the rest of his life.

Starting point is 00:20:51 And so his goal was to accumulate as much money as possible over the course of eight to 10 years. And that money he can live off for the rest of his life. And what he did was he reduced his expenses and he reduced them dramatically where he was saving anywhere from 24 to I think now he's spending like $30,000 per year. And so to have a portfolio where you're spending $30,000 per year, all you need is about $750,000 to be able to do that. And so he had this portfolio in place and all of a sudden the portfolio kept growing and he was writing this blog and this blog was making really good money. And so all of a sudden then he had this other thing going on that he didn't anticipate. But he retired at the age of 30 and just started writing about it because he enjoyed it.

Starting point is 00:21:28 That was what he enjoyed spending his time. And so LeanFi is just that. It's making sure that you are developing a nest egg that kind of. covers your essential expenses, the essentials that you absolutely need. So if you feel as though you can live on a really lean lifestyle of $30,000 per year or $40,000 per year, you're willing to move to a from a high cost of living area to a low cost of living area or a middle cost of living area to make this work or you're doing whatever you can to make this work, then you can pursue lean fire.

Starting point is 00:22:01 And that's the second level that most people should be pursuing. When I hit lean fire, I was pretty excited about it and I thought it was the coolest thing ever. And as you're going to see, the goalposts started to move for me and things started to change and life started to change. But you want to make sure that you start to think through what this is going to look like. Because if Lean Fire is your goal, like your goal is freedom, you want to get to freedom as fast as you possibly can and not have to work at all if you don't want to, then you might have a modest home because reducing your expenses is a big, big portion of how this is going to work. It's not living anything lavish. It's not, you know, buying new clothes every month

Starting point is 00:22:32 or being able to drive the fancy car. No, Lean fire is you're living lean. You're driving a 10-year-old car. You're living in a modest house typically, and you're trying to live on your bare bones expenses. And so your house might be modest. You drive cars way longer than you normally would. You travel economically, like you're thinking about the costs of everything to make sure all of this stuff works. And you really pay attention to your spending. Some people don't mind that at all. They love living that way. And if you're very frugal, this is a great way to live. This is a great goal to have because you don't have an alarm clock. And the tradeoff is you don't have a boss telling you what to do. and you don't have any fear of losing your paycheck.

Starting point is 00:23:07 No, you built up this nest egg, you have it in place, and you have full financial freedom. So let's say you do a little math and you say to yourself, you know what, I can spend $60,000 per year with me and my spouse and my two kids, and we'd be a okay and I'd be happy as a clam because I'd have my time back. I could read books. I could work in the yard. I could start to garden. I could work on my passion projects. I could do the things that I want to do.

Starting point is 00:23:31 And I could be my 30s or my 40s or my 50s and have the ability to read. really just be happy, get my life back, be able to spend my time doing the things that I want. And I love spending time reading at the library. I love, you know, going out and volunteering. I love spending time doing things at my church or doing things with the community events. Well, this would be a perfect opportunity for you is to do something like Lean Fai. And this is what I thought I want. In my 20s, this is what I was working towards. This is what I really was pursuing was Lean Fai because it sounded awesome. It was way better than working a corporate job, way better than working in that cubicle for a boss of Chehade.

Starting point is 00:24:05 And so for many people, LeanFi sounds like a dream. It's a simple life. And you live that simple life. And the tradeoff is you get all your time back. And then if you want to pursue, you know, maybe some business ventures that are low cost or you want to pursue doing other things, then you can make money other ways. But you'll figure that out once you hit Lean Fi. That's what a lot of folks' goal is. And many, many people in the fire movement, this is where they started.

Starting point is 00:24:27 This is where they really, really pursued. And this is the crux of the fire movement is this is it, is Lean Fi. This is where a lot of people were. And this is how they thought about it, where you're living on less than you make. And when you reduce your expenses, it does two things. One, it reduces the amount that you need to invest long term because your amount that you're spending every single year is less. So if you decide, okay, well, I'm going to move from spending $60,000 per year to $40,000

Starting point is 00:24:54 per year. I'm going to cut back my expenses $20,000 every single year by just cutting out all the the extra waste that I don't care about. Well, if you do that, you move from needing a $1.5 million per year. portfolio to a million dollar portfolio. Well, you can get there years faster by doing something like that, depending on what your income is. And so many people, it does two things.

Starting point is 00:25:15 When you cut back, it allows you to not have to have as much in your investments and you're spending less. And so in reality, it just makes it a lot easier for you to not have to worry as much about some of that stuff. So for lean fire people, they're willing to live a simple life or a much simpler life than maybe what traditional people think. And I would encourage you to check out if you are interested in this, to check out Mr. Money Mustache.

Starting point is 00:25:36 You can check out Jacob, Lungfisker. These are like the extreme versions of this where they went out and they did some really cool stuff that allowed them to reach Lean Fai. I love it. I think it's amazing for people who do that. And if you have reached Lean Fai, let me down it in the comments below. I would love, love, love to hear from you. So those are levels one and levels two.

Starting point is 00:25:56 Now let's talk about Level 3, which is Financial Independence. All right, level three is financial independence. And I think this is where most people listening are trying to turn. target because your portfolio can reasonably support your current lifestyle without any employment income whatsoever. Meaning, this is the ultimate goal for a lot of us. You think about, okay, well, how much do I spend right now? I spend 100 grand per year on my family of four, and that's how much I want to spend a retirement. I just want to live the lifestyle I'm living right now, but I want to not have to work anymore if I don't want to. That's traditional financial independence,

Starting point is 00:26:29 meaning you are trying to get to the point in time where you have enough money on hand where you can spend what you're spending now or maybe a little more, maybe you sprinkle a little bit more in there and still have the ability to be able to not work. This is the dream. This is the dream for most people and this is the dream to get to this point in time because it gives you options. It allows you to do a couple of different things. It's the crossing point. It's the crossing point where work becomes optional. You now have F you money where if anything happens in your job that you don't like, you can simply just walk away. Nobody owns your time anymore. Nobody owns you anymore. Because in reality, that's what it feels like sometimes is when you work a job, it feels like. It feels

Starting point is 00:27:04 like somebody else owns you. You got to ask somebody else for some time off. You got to ask somebody else if you could do certain things. So instead, nobody owns you anymore. You have the ability to be able to spend money the way that you want to spend it. And I think this is a wonderful place to be. Because what you're going to see is that once you make this one of your goals after you, you know, Coast FI, Lean FI, and then having the ability to make this one of your goals, all of a sudden your freedom starts to change. You can now have a couple options. One, you can do. You can do it. You can do decide, well, should I keep building my career and kind of going above and beyond because I enjoy this? It fulfills me. It helps me fill my time. And it's something that I really,

Starting point is 00:27:42 really like doing. Or you could start something. You could start a business. You could start something that is a low-cost business maybe that you want to get going. Maybe you're working in the corporate world, but you love getting out there and mowing lawns. You're a big lawn mowing fan. And so you want to go out and start a business where you just are a one-person band, going around town, mowing some lawns, and making a little extra money on the side. You like to be outdoors, you like to spend time outdoors. Or maybe you want to be a guide and you like to spend your time hiking trails and hunting or whatever else. You could do some cool stuff like that. Maybe you love Pilates. And so you have a passion for Pilates. You have a passion for helping folks

Starting point is 00:28:19 get better at Pilates and you want to help improve their lives. And so you want to go that route. Maybe you want to coach your kids baseball team and be able to do that or you want to travel or volunteer. Financial Independence allows you to do whatever you want. It allows you to do whatever you want in life or you don't have to worry about anybody else. And this is what you've all been building towards. This is what everyone's building towards. This is what retirement is. It's just a fancy name for retirement. But for many of you out there, you may be saying to yourself, well, what if I could do more than just the traditional retirement? What if I could have more money on hand, sprinkle a little more sauce so I can live some dream life stuff and I could be able to do some really,

Starting point is 00:28:57 really cool things. Well, that's what the next couple of levels are going to be all about as we start to talk through this. But if you're trying to think through your financial independence number first, and I want most of you to do this math, I want you to say to yourself, okay, how much do we spend per year? And if you don't know that number, go look at your bank statements over the course of the last 12 months. You can pull those out and start to add up how much you spent over the course of those 12 months. You can pull a CSV file from your bank if you're like a Chase or Bank of America or ally or soapy or wherever you are. Pull a CSV file, which is just an Excel sheet and add up how much you spent last year in your checking account. Add up your credit cards.

Starting point is 00:29:31 add them all up and put it together and see how much you spent. Whatever that number is, multiply it by 25. So let's do an example. Let's say for an example, you spent $117,000 last year. Some of you may be saying, how the heck do you spend that much? And some of you may be saying I spend way more than that. This is just an example. If you spent $117,000 next last year, you multiply that by $25,000,

Starting point is 00:29:57 and you've got $2,925,000. That's how much you need in your portfolio. to be able to retire. So for folks out there who are thinking about this and they're like, well, how much is that? Just think about it monthly. That's about, you know, that's about $10,000 every single month. If you spend less than that, then you need less than that in your portfolio. If you spend more than that, you need more than that in your portfolio.

Starting point is 00:30:15 But you just want to make sure that you're thinking through the parameters of what this is and how much you can actually spend. And so for many of us, getting to the point in time where we can get to our living expenses and where we currently are is an easy goal to target because that helps us know and understand, okay, well, at least I'm living how I'm living right now. And maybe things will leave your life. Maybe you won't have a mortgage anymore at some point in time. If you stay in that house that you own for 30 years, you're not going to have a mortgage anymore. Or maybe you're not going to have kids in the house anymore. And so at some point in time, those expenses are going to go away.

Starting point is 00:30:47 And those are going to be little icings on the top. That's going to help you kind of get through the tougher times. That's going to help you get through the times when, you know, you feel as though, is this plan working? No, it's working. You just got to make sure that you trust the process and go through the process. And then as time goes on, you realize, oh, I get Social Security. There's going to be other things that are going to help you in play that will help you plan your financial independence. But you just want to make sure you do the math and the quick back of the napkin math. We have other projections we can talk about that are go deeper and deeper and deeper into your plan. But that's the easy way to get this ball rolling. Perfect. So that's

Starting point is 00:31:17 level three, which is financial independence. So so far, we've talked about Coast Fire. We've talked about lean fire. And we've talked about regular old financial independence. Now, to level four, which has a funny name, which is chubby fire. So when I started my financial independence journey, I was trying to get to lean fire, then I was trying to get to traditional fire. But then I said to myself, what if I want more? What if during my working years, you know, I'm not, I'm filling my hours with work. I'm filling my hours in time and energy with things that I'm doing day in and day out. But how am I going to fill my time when I get to the point in time where I have lots more time. And so when I started to think about that, I said, I want to have a little more.

Starting point is 00:32:00 I want to have a little more on hand so that I can do some cool things and have financial independence with no boundaries. One, it gives me a cushion because I'm a cushion guy. I like to have some extra room on hand for things to go bad or mistakes to happen or things to be in place. But I also want to be able to spend some money. Your boy likes spending money. I like to spend my dollars on things that I actually enjoy. And my interest change, my hobbies change, and I want to be able to do the things that I actually like and spend money without having to think twice about it on some of those things that I really want. Let's give an example of this, is one of the things I love to do is being able to, like, just go to a restaurant, not have to think about it. I can order appetizers. I can order

Starting point is 00:32:41 drinks. I can order the things that I want to order and not have to worry about anything. Well, that's going to give me some extra discretionary spending. Or if I want to order a pizza, you know, because I don't feel like cooking that night or doing dishes, I want to be able to do that at any point in time. And I feel as though if you're lean-fye, you can't make those choices. Or if you are someone who is right on the border of what you're spending now and you don't make those choices currently,

Starting point is 00:33:03 then you're going to be at the same point in time when you get to retirement. And when you have more time on hand, and I don't think a lot of people think about this, but when you have more time on hand, you're going to want to do more things that cost money. At least I will. Not every activity that I love doing is completely free. And so I like to go and hang out with friends.

Starting point is 00:33:21 I like to go and do specific things that are going to cost a little more. Maybe I want to go get a fishing charter. Maybe I want to go and, you know, take a first class flight with my wife to Tahiti. Well, those are the types of things that I want to make sure that I have a little bit of extra cash on hand and have a little bit of discretionary income. Plus, if lifestyle changes happen, let's say my kids want to start playing travel basketball or they want to start to, you know, go to a private school, or they want to do some things that I think, you know, maybe I would. wouldn't have on hand if I didn't start to think about chubby fire in the way that this is going to work, then I would really be remiss to not be able to provide those things for them that they wanted. And so for me, chubby fire was the next goal to think through, okay, well, maybe I want to have

Starting point is 00:34:01 a nicer house. Maybe I want to travel frequently. Maybe I want to make sure I can go to great restaurants whenever I want. Or maybe I want to make sure my kids activities are activities that they can actually do. If they get more and more expensive as they do as they get older, that's something I want to do. Maybe I want to make sure I can generously give to people in need, or I want to drive a car that's a little bit nicer. You know, I don't really usually buy new cars, haven't bought a new car ever in my life, but it could be something that I'd be interested in. Maybe I want to get interested in new hobbies or, you know, maybe you enjoy certain hobbies that could be very, very beneficial to you. And I think all of these different things are important. Maybe you want to help

Starting point is 00:34:38 family. Maybe you want to pay for experiences for your family so you can do more things. maybe you want to have less anxiety around everyday purchases. Well, Chubby Fire allows you to do that. You're not flying private all the time. You're not like doing all these extravagant things, but you're having a lot of extra room in your life to do the things you want to do without having a give or a take. And I think financial freedom should be that way.

Starting point is 00:35:00 I think financial freedom should give you and allow you a little bit of extra opportunity. At least this is my personal opinion. Your opinion may be different. But I think it should give you the opportunity to do stuff you like, do stuff you enjoy, do stuff you've always wanted to try, and if you don't like it, you have a little extra cash on hand. You could spend it down on other things you think would be interesting.

Starting point is 00:35:18 But if you do go this route, you just want to make sure that you're nailing kind of how much extra you want. So let's say, for example, you spend $100,000 per year. Well, $100,000 per year is about $2.5 million is what you need to invest it. But you say to yourself, you know what? You know it would be really nice is having the ability to spend an extra $40,000 per year. If I had an extra $40,000 per year, I could use that on restaurants, I could use that on vacations. I could use that to go get a country club membership and spend time golfing with

Starting point is 00:35:46 friends and family. I could use that to join the boat club at my local boat club. I could use that to whatever the list is, an extra $40,000 per year means you need an extra million dollars invested. And I think it's worth the time and energy to think about at least because if you're already at the point in time where you have two and a half million bucks invested, how much longer is it going to take you to get to that next million. How much longer is it going to take you to think through, okay, well, I want to get to that next million dollars. Maybe it's five years, maybe it's four years, maybe it's six years, depending on your rate of return. And is that worth your time and energy? Well, it's going to depend on your age. It's going to depend on where you are. It's going to depend on

Starting point is 00:36:26 your job. It's going to depend on all the other things that you're doing. And for some of us, it is worth it. And for some of it is not, which is why you can stop at traditional financial independence and be completely fine. You could stop at LeanFi and be completely fine. There's countless examples of people that have done. so. But I just think that if you want to live the life you want to live and you don't want to live with regrets, chubby fire is something I'm very interested in. And so for many of you out there, that's going to be a great place to go so that you can do the things that you want to do without having to worry. And I think that's a powerful place to be. Now let's get to the final level,

Starting point is 00:37:01 which I think is a really, really cool spot to be, which is fat fire. My relationship with money has changed a lot over the years. Early on, I thought building wealth was about making more money. Now, I know it's really about having clarity. When you know exactly where your money is going and whether you're on track, you make better decisions. That's one of the reasons I love Monarch. It's the personal finance app that tracks everything from your accounts and investments to your savings goals and spending so you can see your entire financial picture in one place. One habit that's made a huge difference for me is my five-minute drill every single morning. I open Monarch, check my spending, investments, cash flow, and net worth, and I'm done in just a few minutes. It gives me confidence

Starting point is 00:37:46 that nothing is slipping through the cracks. I also love the AI Weekly Recap because it'll flag spending changes, upcoming expenses, or shifts in my net worth before they become a problem. Instead of reacting after the fact, I can make adjustments early. It really feels like having a financial advisor in your pocket. Write your own money story. with Monarch. Use code PFP at Monarch.com to get your first year of Monarch core half off at just $50.00. That's 50% off your first year at Monarch.com with code PFP. It's kind of amazing how much can change in just a single year. Every summer, the kids are a little bigger, a little more independent, and life looks a little different than it did the year before. And it reminds me that while we can't

Starting point is 00:38:32 predict the future, we can prepare for it. That's one of the reasons I like PolicyGenius. See, PolicyGenius isn't an insurance company. They're an online marketplace that lets you compare life insurance quotes from some of America's top insurers side by side for free. And their licensed team helps you compare coverage, prices, and terms, answers your questions, and even handles the paperwork so you can get the right policy without the hassle. For me, having life insurance isn't about expecting something to happen. It's about no. knowing my family is protected so I can actually enjoy these moments together instead of worrying about what comes next. And with PolicyGenius, you can find 20-year life insurance policies,

Starting point is 00:39:13 starting at just $276 a year for $1 million of coverage. Head to PolicyGenius.com to compare life insurance quotes from top companies and see how much you can save. That's policygenius.com. So level five is Fatfire, and this is financial independence with a very high-end lifestyle. So for a lot of my high earners out there, you may have a higher end lifestyle that you're pursuing or you have a lifestyle that you really want to be able to do the things that you want. And so this is going to be one of those lifestyles where you can kind of live lavishly or live amazing and have the ability to be able to get to the point in time where you are happy with how much you're spending. So maybe you're spending $250,000 per year right now and you want to spend $300,000 to $400,000 to $400,000 in retirement

Starting point is 00:39:57 because you want to travel more and you want to travel in luxury hotels or you want to take those first class flights or you want to be able to do all the things you want to do, but you don't want to get caught up in some of these universal thresholds. You want to have the ability to kind of enjoy your time and energy. Maybe it's luxury travel. Maybe you want to have multiple homes. Maybe you want to have boats or expensive hobbies. Maybe you want to have private school for your kids or significant charitable giving.

Starting point is 00:40:20 All of this can be had with fat fire. And a lot of people who build generational wealth, they start to make this one of their goals as that time goes on. And maybe you want to help parents or you want to help, you know, pay for family vacations or you want to buy back just an enormous amount of time. Fat fire is the way to do that. And so I've seen a lot of folks make this their goal at their high income and earners, because that's one of the only ways to do it.

Starting point is 00:40:42 And they really, really just want to live this different lifestyle that they never got to live. And so, you know, I see a lot of doctors or attorneys try to, you know, pursue fatfire. I see a lot of tech entrepreneurs pursue fat fire. I see a lot of tech employees pursuing fat fire because they're making good money. I've coached many people making, you know, over a million dollars per year. and this is one of their goals is to take a huge chunk of their money, live on less than they make right now, and put it towards their investments so they can get to this point in time where they are financially free and can spend money for the rest of their life.

Starting point is 00:41:11 An interesting thought process on this, okay? Let's say you want to spend $50,000 per month. You reverse engineer this. Well, that's $15 million in your portfolio to spend $50,000 per month for the rest of your life and be a okay. Pretty cool lifestyle. I'll be able to spend $50,000 per month over that time frame. Let's say you want to spend $100,000 per month. We need $30 million invested.

Starting point is 00:41:33 And so I think like peak financial independence. Like if you wanted to get to fat fire and you feel as though you want to do whatever you want in this life, getting to $30 million with a paid off house is like, that's the ultimate spot to be in because you can spend $100,000 per month, $1.2 million per year and be able to do whatever you want. Now for many of you, that's probably too much money. And for many of you, that's probably just too far and you don't need that much. But it's fun to dream about it's fun to think about, hey, what are the ultimate

Starting point is 00:42:00 Pinnacles that you can get to. Get your mad scientist hat on like I always talk about all the time here. And try to think through some of the ultimate pinnacles. 15 million bucks gets you to about 50,000 per month. Okay. Seven and a half million bucks gets you about 25,000 per month. And so these are just great goals to have if you want to spend more. If you want to spend more in your lifestyle and be able to draw down more money so that you can do cool stuff, that fires the way to go. So if you have a high income, try to decide all the things you would want to do. List out all the things you would enjoy doing and have fun doing in retirement or, you know, financial independence. Maybe you want to go skiing every year. You want to do a monthly trip to a different location

Starting point is 00:42:36 for a week out of the month. Well, Fat Fire allows you to do that. Maybe you want the vacation home in Aspen. Maybe you want to have a second home in Italy. Maybe you want to have a third home in China. I don't care what it is. But you decide what you want to do in this life and you have the ability to do it. But you got to make enough income to make it work. It's not going to be for everyone. So again, this is the pinnacle for a lot of folks out there. Don't get upset. If you can't achieve that fire, this is just a concept that many people try to pursue. And so for many of you out there, I think that the higher levels of fire come with a cost. Because if you get to the point in time where you get to $2 million, and this is my biggest

Starting point is 00:43:13 problem. This is personally, let me open up to you guys here. My biggest problem is every time I hit a financial independence goal, I want the next one. And I want the next one. And my goalpost always moves and it moves constantly. And you got to figure out how to get to the point in time where you're content. Because contentment is a superpower when it comes to personal finance. It's a superpower when it comes to financial freedom and being able to be financially free. It's becoming content with the things that you have. And sometimes it's not just the things that you have, but the portfolio that you have. If you're an investor at heart and you love watching that portfolio grow, sometimes you keep working just because you like to watch the portfolio grow.

Starting point is 00:43:50 Sometimes you keep working because you like to invest. Sometimes you keep working because you feel as though this is a game and you want to win the game as many times over as possible. Well, for many of you out there, getting that goal post to stop moving is not as easy as it seems. And if you can't get it to stop moving, you got to set up some parameters, make a manifesto of some sort that says, hey, this is where I'm going,

Starting point is 00:44:11 this is why I want to get there. And once I hit this point in time, I'm stopping. Because otherwise, it's never going to stop moving. And if you don't mind that, if you don't mind continuing to work, work because you think it's fun and you enjoy the game and you enjoy setting these goals. That is completely fine. But you got to make sure that the goalpost doesn't keep moving because you want to consume more.

Starting point is 00:44:30 You want to consume more stuff that you don't really care about. You want to consume more stuff that your spouse doesn't really care about. You want to consume more stuff where you're sacrificing time with your family, you're sacrificing time with your kids to work more to achieve this frivolous goal that you don't really mind. And I think for many people out there, they're like, well, what am I going to do with my time? Well, when you retire, you don't have to spend your time just sitting on a beach, sipping a Mai Tai or a margarita. You can build a company that you are passionate about. You can take on work that you enjoy.

Starting point is 00:44:59 You can be a creator. You can start to create things that I think are enjoy. You can give back. You can be a full-time investor. You can invest your money full-time, try to find ways to optimize that. Maybe you get into individual stocks, things like that. You could teach. You could coach.

Starting point is 00:45:12 You can mentor people. There's a lot of ways to fill your time. If you look at retirees now, there's some of the busiest people you'll ever see. So don't worry about your time as much. Just start to identify some of the things that you love and you will fill that time in with things that you need. And financial independence for many of you out there is not simply about just getting your time back. It's also about a bigger picture. Maybe you really have causes you believe in and you want to give back to those causes. I think more people should build wealth to give back to causes they believe in. To give back to causes they're

Starting point is 00:45:42 passionate about. To start those nonprofits. Maybe you're writing a book or you want to do mission work or you want to, you know, homeschool your kids so that they actually have an education that you believe in, you feel as though is truth. I think all those things are commendable and why you would want to achieve financial independence. And I think that's really, really important. So a few notes on this is the gap between your income and your spending is the engine. If you want to start to climb these levels of fire and you want to start to get to some of the next level, your income versus your expense is the big engine. And that gap is what's going to allow you to get there.

Starting point is 00:46:15 increasing your income is number two. It has no ceiling. There's nothing that can stop you from increasing your income. So the more you increase your income, the faster you can reach these levels of financial independence. The faster you can get the point in time where you're actually hitting these goals. Three is watching that lifestyle inflation. Because the more your lifestyle inflates, the more money you're going to need in your

Starting point is 00:46:35 portfolio, the more money you're going to need in your portfolio, the longer you're going to have to work. And it's going to continue to cycle up and up. It's okay to want some more things. It's okay to want to achieve fat fire or to achieve chubby. fire or just traditional financial independence. All those are great. But just make sure you know why when you do stuff like that.

Starting point is 00:46:51 And Coast Fire is always going to be your first milestone. If you haven't hit it yet, make that the first goal that you have, then start to think about the other goals. Now, I want you to let me know down below. What is your financial independence goal? And are you already financially independent or are you still working towards that? Do you want to be coastified? Do you want to be lean five?

Starting point is 00:47:08 You want to be chubby five. You want to be traditionally financially independent. Tell me down below and tell me why. If you're watching on an Apple podcast or Spotify or YouTube, I would love to hear from each and every single one of you. I think it's really, really fun to hear your feedback and some of the things that you are working on. It's really, really powerful.

Starting point is 00:47:25 It's a really powerful way to kind of get to the point in time where you're trying to achieve financial independence. And are any of these new to you? I would love to hear from you down below as well. Also, if you want to dive deeper with me, if you want to spend some time with me one-on-one, increasing your finances and you make over $100,000 per year in household income, or you have $100,000 that you are looking to get started investing in, reach out with the form down below or shoot me an email and let me know.

Starting point is 00:47:50 We'd love you get to connected with our folks so you can get more information on the program that we're working on. And it is going to be a transformative program that I am so incredibly excited about. We're going to transform your finances over the course in the next six months. And if you have goals like this to achieve financial independence as fast as possible, this is a great program for you. So we'd love to hear from each and every single one of you. Again, this is not for everyone.

Starting point is 00:48:10 It's for folks who are making over $100,000. per year. The program that we have for everyone is Master Money Academy, and I would love to have each and every single one of you in there as well if you're interested. The price that you pay for this thing is just unbelievable. So I would love to see you inside. I'm coaching people every single day in Master Money Academy if you want to see that. So thank you guys so much for being here. I truly appreciate every single one of you. I hope you learned a ton. And I hope this enlightened you to get started pursuing financial independence. My goal is to bring you as much value as possible. If we did that today, consider leaving a five-star rating and review. And I'll see you.

Starting point is 00:48:42 on the next episode.

The Personal Finance Podcast - The 5 Levels of FIRE (Coast, Lean, FI, Chubby, Fat)

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