Most people would love to become financially independent and have work be optional, but it is that realistic?
Today we’re looking at the real scoop about FIRE and whether it’s the path for you!
Financial Independence with Kids: Is That Really Possible?
One of the reasons I started Simplify and Enjoy is I felt like there wasn't enough discussion about financial independence and how that fits in when you have kids especially young ones.
I do believe that financial independence is really not about the money but about freedom.
But the reality is you have to have a plan to get you there.
What choices do we need to make as a family now to get us there?
Helping me to dig into this is Jonah Kaufman. He’s a financial advisor at Coastal Wealth Management.
In this episode we’ll discuss:
- 5 big myths and misconceptions people have about financial independence
- Two key numbers to keep an eye on for early retirement (and income is not one of them!)
- How you two can create a FIRE plan that fits you
Hope you enjoy!
Handy Tools to Start Your FI Journey
If you’re looking to get ahead with your finances as a family and look at pursuing financial independence, here are some resources to check out:
- Best Budget and Money Apps: Personal Capital, Tiller, Mint, Zeta
- Grow Your Stash Faster: High Yield Savings with CiT Bank
- Manage Your 401(k) Easily: blooom
- Jumpstart Your Marriage and Your Money
- Is Financial Independence with Kids Possible?
- How They Retired Decades Early — With Kids
Too many to number, but here are just a few of my favorites!
- Marriage, Kids, and Money
- Root of Good
- Rich and Regular
- City Frugal
- The Fioneers
- Financial Panther
If you’d like to chat more your money system, please join us in our private and free Facebook group – Thriving Families.
We’re families looking to support and help one another out.
Hope to see you there!
Thank You to Our Sponsor Coastal!
Support for this podcast comes from Coastal Credit Union! If you’re living in the Raleigh Durham area and looking to bank better, come check out Coastal today.
If you want to be better prepared financially for retirement, please check out Coastal’s Retirement Planning options!
Before we get into the house and the process I want to talk a little bit about financial independence because you've probably seen the stories and you might have an idea of what it is.
Sometimes, though, I feel like what they highlight in the newspapers, podcasts, and online….. I mean it's great for a story it's great drama and I get why they pick it but I don't think it gets the whole spectrum of the movement.
And sometimes I feel like it discourages people from trying it out because they don't have similar circumstances to what's being highlighted.
When you have high-income families saving 70 percent of their income, first off- kudos. I think it's awesome they're keeping their spending in check.
I also think, however, you should highlight other stories where they have more modest incomes but they're saving a significant portion of it.
And think that's a good place to start with these FI myths…
Myth #1: You Need to Be a High Earner to Be FI
Truth: While income is a factor, it’s not the deciding one for FI.
Listen if you’re a dual-income family with a healthy income, it’s typically going to be easier and faster for you to reach your goals.
However, provided you’re not below a certain threshold (I'm just going to use $40k as a baseline for family's to take care of essentials and have some buffer), I do think it is possible to become financially independent with a more average income.
Because while income is a factor, it's not the main one when it comes to financial independence.
Two numbers to instead look at are:
- Your Essential Expenses: How much money do you typically spend each year? What are your usual monthly expenses?
- Your Savings Rate: How much are you saving and investing each month?
When you're aware of both numbers you can then start on a plan to build up your savings rate and get you to FI faster.
Myth #2: FI is About Never Working Again
The second misconception I see is financial independence is about never working again.
The truth is the more I speak with people in the community different backgrounds the kind of thread that connects us all is financial independence is about designing your life around what matters to you.
And yes there is a big subset of financial independence called FIRE which is financial independence, retire early but financial independence itself is such a broad term and even within the community you're going to have different subsets.
Some that I've seen are:
- Barista: where you've saved enough. So the only need to work a part-time job and maybe it's for like a little supplemental income for travel or a little extra expenses or maybe it's for the benefits like health insurance
- Coast: you reach a certain threshold with your saving and you're on target for your goal but then you slow it down as a way in those years leading up to becoming financially independent to make it less stressful and you might switch careers and try different things
- Lean: that's where you saved enough to take care of your basic expenses
- FAT FI: If you have lean you have the other side. Sometimes they call it fat fire where the lifestyle you have it could be fully upgraded you want travel you like the nice things you save up a significant amount to get you there
By the way these aren't formal definitions. There's no official dictionary for this but these are just my general takes about what I see within the community.
I thought this is actually something encouraging especially for families because you can see that you can craft a path that fits you where you are now and where you want to go.
Myth #3: You Need to Be UberFrugal
Another idea about financial independence that actually might be a turn off to you and in other families is this idea that you need to be uber frugal.
You have to cut things down to the bone to be able to retire early.
That's not the case.
The truth is however with financial independence it is a mindset shift. You absolutely have to be more mindful of your money. That means you're going to make decisions that are different from other people.
You also have like Kevin from Financial Panther where they're not necessarily trying to be frugal for frugal sake.
They're being more conscious of how they're spending their money and how they're directing their time towards what matters to them.
Myth #4: You Can’t Become FI in an HCOL Area
And then finally there's this idea that you cannot become financially independent in a high cost of living area.
I'm not going to lie. The truth is it is going to be a challenge if you're going to be living in a bigger city.
But it is not impossible.
You have to have a strategy to offset and minimize that typically higher housing costs. But there are also advantages to living in a large metropolitan area.
Some bloggers that you might be interested in are Frugalwoods, they had started in Boston.
You have David from City Frugal.
You also have The Fioneers that are based in Boston and then also you have zero from Walking to Fire. She's in New York City.
These are areas where it is very expensive to live. But it doesn't necessarily have to be as expensive as you think it is.
I hope that just kind of talking about financial independence and the different flavors and paths that you can take.
I also want it to encourage you about looking into this a little bit more.
Finding a Path Towards Financial Independence While Raising Kids
Elle Martinez: Jonah thank you again for joining me. Especially talking about financial independence and investing.
We have a lot of people in our community that are curious about this. They just finished off paying their debts or very close where they see the light at the end of the tunnel and they're thinking about the next steps.
This idea that if we could retire early or have enough to take care of our essentials why don't we go for that? And that is a huge goal.
As a financial expert, How exactly would this work out?
Now the formula that's given on the web for financial independence is:
Annual Spending/ Safe Withdrawl Rate
Could you kind of break that down? What that would translate to for a couple of interested in this goal?
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Like the music in this episode? It’s provided by Lee Rosevere.