What If You Never Had to Think About Saving Money Ever Again? 🤔

Brock's newsletter | OCTOBER 25, 2024

One of the concepts that got me really excited about personal finance at a young age was an online movement called FIRE - Financial Independence, Retire Early.

It really influenced my thinking, as much as the books The 4-Hour Workweek and Rich Dad Poor Dad did.

There are thousands of online communities devoted to FIRE, with three main variants.

There’s Skinny FIRE, which is all about creative budgeting and living on $30k a year. Their Pied Piper is one of my favorite money bloggers, Mr. Money Mustache. The idea here is to save 80% of your income until you are 35, buy T-Bills, then quit your job and travel the world.

Skinny FIRE was the original FIRE, and a lot about it appealed to me. My parents are crazy frugal. My mom hates spending money, even now, and while my Dr. Dad likes to earn it (he only retired this year at 75), he never bothered to learn how to spend it. I inherited their ways but don’t worry, Lori (who has not once been accused of frugality) is working on me and she says I’m making progress.

There’s Fat FIRE, which is about retiring early but with normal money and expenses, like kids. Financial Samurai, a blogger I link to a lot, has the most to say on this.

Another popular variant is “Barista FIRE,” which involves retiring early but getting a part-time job to help out. You get the idea.

I don’t necessarily agree with the philosophy of all of it. The “I Will Teach You to Be Rich" guy, Ramit Sethi, has the best summary and counterpoints in this 15-minute video.

The problem with a FIRE plan, as I see it, is that it requires incredibly rigorous saving and investing. Asking people to live below their means and diligently investing for two decades is so excruciatingly difficult that it should be considered almost impossible. Let’s face it: most people work their entire lives and don’t have any savings at all.

But there’s a little shortcut, which I only just heard about and really liked: Coast FIRE.

Coast FIRE requires saving and investing yes, but says “Save until you hit a certain amount and stop.” Or as this great article headline asks, “What If You Never Had to Think About Saving Money Again?”

It’s simple math. Work backwards from what you need to retire at 65. So if you want $50K a year, you need $1.25mil in the bank, based on the 25X rule of retirement.

The key part here is, you don’t need to save $1.25mil. You only need to save and then invest the minimum amount of money that will GROW to that amount by the time you’re 65.

You need to calculate the minimum amount of money you would need to “set it and forget it” and still reach your goal, and once you reach that number, you're done!

So take your current age, income, savings rate, and desired age of retirement, and plug them into a Coast FIRE calculator.

Here’s Melissa, an example from the article: “Looking at my own annual expenses, I can calculate that I need to have $1.7 million at age 65 to retire comfortably,” she says. “If I have 30 years until my retirement, that means my Coast FIRE number is $171,000. So I knew that from the moment I hit $171,000 in my retirement account, I could retire in 30 years even if I don’t add another dollar to my savings.”

Now let’s get to the good part. Maybe you see where this is going…

A house is the ultimate Coast FIRE strategy. It's easier. And the upside is way, way more.

I’m not saying you don’t have to save anything if you buy a house. Do both!

But let’s do the math. Say Melissa can take that $171,000 and use it as a 20% down payment on a $855,000 house. Which in 30 years will likely be worth far, far more than her $1.7mil goal.

Yes, it's not that simple: she’d have to sell it to realize the income, and there’s costs of ownership, cost of sale, and taxes (or maybe not…). Lots of moving parts.

But overall, homeownership puts the COAST in Coast FIRE.

A house is a time machine that takes wealth from today into the future, and grows it massively and radically, without you doing anything except living in it.

Our Top Weekend Open House Picks