What Everyone Gets Wrong About FIRE

Hey there, real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience Live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. I've been in the game for over 30 years, three decades plus, as a CPA, as an entrepreneur, as a financial educator, and I've seen people retire early, only to come crawling back to work faster than you could say market downturn. All right, in this episode, I'm going to show you why the FIRE movement, the financial independence retire early movement, can actually leave you less free. And that there is a smarter way to chase financial independence without sacrificing the best years of your life. I'll break down eight of the biggest problems no one's talking about, and I'll give you stories and examples that will make you rethink the whole retire early fantasy. And I'm even going to share with you my lifestyle cost calculator for free so you can start to get a real number around your freedom. Not the Instagram version. I. All right, this is building your money machine, where we help you master your money, eliminate financial stress so you can live a life of choice. Because earning more doesn't make you free. A money machine does. And that freedom, it doesn't start with your next raise or your next paycheck. It starts the moment we get your money to work harder for you than you did for it. Think of this as a bit of financial education and a side of sarcasm with a whole lot of heart. And I'm your host, Mel Abraham. Let's do this.

For so many people. People say they want to retire early, and this FIRE movement has just picked up speed and everything of this financial independence, retire early. But here's the truth. For too many people, FIRE ends up standing for frantically investing and rarely enjoying. Instead of financial independence, retire early. And that's because what a lot of people are building isn't freedom. It's just another job. The only, only difference is that this one's unpaid, it has terrible benefits, and it comes with a boss who lives in your head and never shuts up. And that's where the kicker is. Okay? Most people are chasing fire and have no idea what their freedom actually costs. Now, one of the things that we can do to fix that is figure out what your freedom costs. And with that, I want you to download my lifestyle cost calculator for free. If you go to melabraham.com lifestyle you can grab it, you can start to see what your freedom costs. But at the same time, there are eight real problems I see with the fire movement. And there's some ways to navigate it so you can have the financial freedom and the life that you want. And we're going to start to break this down. What is fire though? For those of you that maybe are unfamiliar with it, in a nutshell, it's this save like a maniac. I mean we're talking like 50, 60, even 70% of your income. Invest it mostly in index funds and live on as little as possible. And then your goal is to hit some magic number in your portfolio, usually 25 times your expenses, so you can pull out 4% a year and never have to work again. That's the magic formula that we come up with. But the challenge with that is first off, it's 50, 60, 70% of your savings. So you have these low expenses that you're doing 25 times. It's just, it sounds simple, but in reality it's like training for a marathon by holding your breath. Technically it's possible, but you might not enjoy the process or even get to the finish line. Freedom isn't about when you stop working, it's about how you live along the way. And you can't design a great life if you don't know what that life really costs. And that's why that, that calculator helps. Now let's just look at the first problem. And I think the first problem is the unrealistic savings rates. Most hardcore fire followers aim for saving 50% plus of their income. Now, in the wealth priority ladder, in my work, I say I want you to have 20 to 25% of your income going towards your investing in your future. This is more than twice that. So, so if you earn $80,000, that means living on 40,000 while rents and groceries and healthcare prices are doing their their best impression of a SpaceX launch. Okay, this is financial crash dieting. You can pull it off for a while, but sooner or later you're, you're going to be staring at a dessert menu of life thinking, screw it, it doesn't work. We cannot do this long term. And more importantly, what is it training our minds to do? What is it Training that ourselves to do from a frugality standpoint. Which leads to what I think is the second problem with this, and that is extreme frugality backlash. See, I met a couple once that hadn't taken a vacation for seven years. Why? Because they were laser focused on fire. They hit their number and then they spent their first year of freedom fighting about where to go because they had no shared vision. They had no shared. They had just a shared budget spreadsheet. Okay, this is why I say that if we don't enjoy the path, the journey to financial freedom, we'll never enjoy the destination. They spent the that first year fighting because they delayed joy too long. You don't get better at living, you get better at avoiding it when you are in this extreme frugality kind of space. And I think that this is something that we need to be aware of. One of the things that I do when we're building out a financial plan, a dynamic financial plan, what we call a money machine master plan for our clients, is I tell them in the plan we need to have at least three sustainable joy points, not momentary pleasures. I'm not talking about the thing you saw on Instagram that you swiped and you bought. I'm talking about the things that give you visceral, sustainable joy. The things that bring richness to your life. And if you're sharing your life with a spouse, significant other, boyfriend, girlfriend, it doesn't matter. This is for both of you. Because the richness in your life isn't in the bank account. Richness in your life is in how you experience it, how you feel it, and what that feels like. But fire is totally focused on chasing a number and not the experiences. And what we're doing is we're not training ourselves to find joy on the journey. We're simply judging and shrinking down and shrinking down and, and not spending for anything because we gotta hit that number. Okay, So I think it's a problem. I don't think it's sustainable. Okay. When I got diagnosed with cancer, one of the things I needed to do is to break my connection with sugar. I had a sweet tooth. Everything else, I ate healthy, I exercised, but I had a sweet tooth. I went on a water fast. Now, I couldn't sustain that water fast food for, for a long period of time, but I did it for, for a week, okay, four or five days. You know that I can do that. But when we try to live on such a small number and we aren't creating a life from that, what, even when we get to Fire. What does the new life look like, the free life look like? Are we still living on that small number? So what did we do? We imprisoned ourselves in this frugality and now we've created freedom in frugality, which I don't think is freedom. All right, just, just saying. All right, number three, the over reliance on market performance. Okay, here's a stat. In 2008, the S&P 500 dropped over 38%. Okay? If you had just retired early with your perfectly calculated 4% withdrawal plan, congratulations, you're now panic googling how to make money on Etsy because you over relied on the market performance. Markets go up, markets go down. A dip early in retirement can completely wreck decades of planning. Okay. It's called the sequence of return risks. Now the other challenge with this is that, that when you talk about this 4% rule as it is, when this 4% rule was created, it wasn't really a rule, it was just an analysis. It was meant for a traditional retirement, 30 year retirement. So they were assuming 65 to 9530 year retirement and they looked at market returns and they looked at it and said, hey, by and large if you withdraw 4%, you should not run out of money over that 30 year period. You should be in good shape. And this got taken in to the finance world, especially in the fire world, to be the, this withdrawal percentage that we use. But imagine for a moment that that was developed based upon a retirement of say 65 to 95, 30 years. But you retire now at 35 and now your portfolio needs to last 60 years twice the time. That means that there's twice the time for these volatility and this, this element of, of downturns to hit you. So if we intend to retire early, 4% rule or not, fire or not, there needs to be a margin for volatility in your portfolio. There needs to be an allowance in there that can carry you in anticipation that, that, that you might have a drop in the market, a drop in your portfolio, drop in that money machine early on in your years. Okay, then problem number four, the now what problem? A friend of mine retired at 36 and on day one he felt like a rock star. By day 30 he was reorganizing his sock drawer for the third time. Here's the thing. Work gives us an identity, it gives us purpose, it gives us community. And when you pull that out cold turkey, you might find that the silent isn't peaceful, it's deafening. Okay? When I talk about retirement and I think I've been effectively retired for over a decade, that it is a shift in what the motivators are in our earnings. Okay? It isn't about we just end up on the porch somewhere with pina coladas and sunshine. It's a shift in the sense of saying, well, I am still working, but I'm also still retired. Because everything I do, including this, is by choice. See, I think there's a shift from need to choice. And when you have that financial freedom, everything you choose to do is just that, a choice. And that's what I want for all of you. But the problem is, is that most don't prepare for it. And the psychological impact on you from that transition of having purpose, going to work, doing the things to now what do I do? Can be not only deafening, it can be maddening. And we find that people will start to go do other things because they need it. And so my point here is this, is that even if you're on this fire movement or any kind of retirement, I don't care when that point is, we need to plan for it. What is your purpose? What is your identity? What are you going to do? This isn't a yay, I'm done. I'm doing nothing. Because that will wear on you pretty quickly. And if not, it might wear on your spouse pretty quickly. So what the question is, is what is your continuing purpose? What is your continuing community, and what is your continuing identity? That way you don't have this now what? Problem. And I see it a lot when people retire early, they just squander, they wander, they. They're. They don't know where they are. They're directionless. All right, that leads me to problem number five, and that's limited accessibility. Let's be real. Fire is way easier if you start at six figures, have no kids, no debt, and no major health expenses. I get it. But for the average person juggling a mortgage, student loans, rising costs on literally everything, hitting fire numbers can feel like you're chasing a bus that's always pulling away. Okay? And so when we start to look at this, I think that we need to be really clear and real about what we have in our life. We have. We call the 30s, that decade of life, the messy middle. Why? Because this is a time when we start thinking about buying homes, having kids, developing families, developing more careers. Our prime earnings years are the 30s and 40s.

In doing that. But here we are trying to retire in those years when there's a lot of shifts and a lot of changes and things that can happen. And so all of a sudden, the accessibility to hitting fire keeps shifting because the number keeps growing, because our family's growing, expenses are going up and life is changing. And I think that this is something we need to be aware of and build into the plan. This is why when we do a plan, we want it stress tested, we want it scenario tested, we want to change the assumptions to see what, what we can do next, what we might need to change, and where our hotspots are, where our critical zones are to make it happen. All right.

Then problem number six is life changes the plan. Life happens and it's going to happen, okay? One illness, one divorce, one family member who needs care and everything shifts. Life doesn't. Check your retirement spreadsheet before it blows your plans all to hell. Okay, but think about it. My cancer diagnosis. I'm not a smoker, I'm not a drinker. No my family ever had cancer. Certainly didn't expect it. Listen, my family, we had our share of diabetes, heart disease and things like that. That would have been expected. Cancer. No. But that one moment completely changed everything. Everything came clear, okay? But if I wasn't set up properly financially to carry that, I would have been stuck not only fighting for my life, but fighting for my financial life at the same time. All right? And so it could be an illness, it could be a divorce that completely trashes the plan or cuts the assets in half or less to do that. It could be that maybe a family member is in trouble. My mom, when she got sick, okay, we lost her a year ago. She was on dialysis for six years in an assisted living facility. And.

That journey on the assisted living facility, that six years cost over $850,000. Those things can completely destroy a plan. And if you are being so frugal, so tight that the numbers are so thin, anything that happens can throw it all away. And so for me, I think that we need more room in this. We need more flexibility in building it to make it happen. All right, that leads me to problem number seven, and that is health care headaches. Okay? According to Fidelity, they say the average 65 year old couple will need 315,000, okay. For health care in retirement. Now that is Traditional retirement age, 65 to 95. Now imagine you're retiring at 40 without employer coverage. Have you calculated the kind of medical expenses that might be there? And I don't think we think about it. Now to help you with it, you can grab my lifestyle cost calculator to add in some medical expenses and see what it does to the Number, we'll hook that up for you below. Just go to melabraham.com lifestyle totally free. But it'll help you start to understand these numbers and play around with these numbers to see where you're at. This is not meant to get you to. To not go for it. It's meant to equip you and empower you to do it the right way. That's all I'm saying. I'm not anti fire, I'm anti blind fire, if you will. I think that there's some things we need to be aware of. Go in eyes wide open and see where are the potholes? Where are the things that I can get in trouble with and let me solve them, okay? This is no different than a regular retirement. Okay? I am going to be here as the date of the filming. I'm going to be 64 in two weeks. I'm looking at, hey, what does the next couple decades look like? I'm going to be going on a different medical plan starting next year. So we're changing the numbers, we're adjusting the numbers and we're testing everything to make sure that we have enough margin for anything to happen and build it out so I can have the peace of mind, so my wife can have the peace of mind. And that's what we need to do this. Not be so skinny, so narrow, that it one little hiccup throws everything off. That leads me to problem number eight, over indexing on money and under indexing on life. I think this is one of the biggest things. Here's the punchline. You can be financially independent and still feel trapped if you've built a life that's all spreadsheets and no soul. Well, that's the problem. See, money is supposed to be a paintbrush that paints the masterpiece called your life. Money's not the painting, okay? And when we start to see it as the painting, that's the mistake. So here's the thing. This is exactly why, when we work with clients, or even in my book, the first thing we start with is what is the life you want? What is the vision you have? And if you're in an intimate relationship, committed relationship, you do that together. What is it that you want that's going to make a difference and say, that's the life we're going for. What's the price tag for that life? And what is the way we can enjoy the journey along the way? So then you're not over indexing a number in an account and under indexing the feelings of richness and rather, what you're doing is balancing your ability to create the wealth you need for the financial freedom you deserve and live the life on the path to that financial freedom. So what do we do? What's the best way to do this? Okay, Instead of financial independence, retire early. Here's how I think you should do this. And I've got a couple of steps for you to do. And I would tell you to look at this through the eyes of financial independence. Rich experiences. Step one, design your life before you design your exit. What is your life going to going to be like? I just kind of mentioned that. Don't just plan to leave something, plan what you're going towards. What does that look like? What does that feel like? Health, relationships, all the domains of life. Okay, so that's the first piece. The second piece is I want you to build multiple income streams. I have something that I talk about in the book called the Five Incomes. Okay? The idea is this, is I want to build margin for volatility or errors in the plan. And the way we can do that, one way we can do that is to have multiple income streams. So I'm not dependent on, on the mood swings of the market. So if we happen to have that downturn, I have other income streams and I have liquidity in place to carry me during that time so it doesn't blow up the whole plan. Okay? Number three, retire from the grind, but not the contribution purpose. Beats permanent vacations every time. What is your purpose? Get really clear with it. What are your values? What are the things that mean something to you? Where's your generosity coming from? What are you shifting from and what are you shifting to? Not what are you doing and what are you stopping doing? Because that's a lot of times the eyes that we look at retirement through, okay? And number four, track the joy and the connection as much as you track your net worth. Okay? If you're tracking your net worth and get more joy out of that than the connection with the people around you, I think we need to check some things because life isn't meant to coddle dollar bills. Life is meant for connection. And the dollars allow us to deepen the connection. It allows us to do and create experiences for the people we care about. All right? And then step one might be to just understand what your life costs are. And the way to do that is to grab the life cost lifestyle cost calculator. And. And I've got the link below. All right, here's the thing. When it comes down to the fire movement I love the idea of it. What I don't like is some people take it to an extreme. So it goes from financial independence, retire early to frantically investing and rarely enjoying. How about we go to financial independence rich experiences by making sure that we know our values, we we know our path, we know our vision and we are moving towards that with a plan that is battle tested, that is stress tested, that is scenario tested. So you can go with the peace of mind to know that you can hit those numbers and live fully each and every day for the rest of the days of your life. That is freedom. Because freedom without joy isn't freedom at all. And building your money machine is the fuel you your life now and later. All right, I hope you found this helpful. I hope you can start to look at it through a different set of eyes and approach it the way you need to approach it to give you sustainable wealth and more importantly, deep joy and fulfillment along the way. All right, let me know what you think, drop some comments, send me some notes. I'd love to hear from you. And if you haven't done so already, make sure you've subscribed to this channel. If you and grab the lifestyle cost calculator at the link below also. All right, till I get a chance to see you on your path to your financial freedom. As I always say, always, always strive to live a life that always see you in the next one. Cheers. For now.

Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent life stuff, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building your Money Machine where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright and I want to help each and every one of you claim it. Thanks so much.