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If you're renting then net worth makes sense to base your FIRE calculations on. Rent is just part of annual expenses, just like when working.
Even then, I would only count the value of my investments for FIRE calcs. Sure, for some people that may be the same as net worth, but I would expect that to be rare.
For instance, I don't count the portion of my EF that is in a money market account towards FIRE, but I do count it as part of NW.
Last edited by SaucyAussie; 03-31-2019 at 06:07 AM..
For FIRE I count my liquid and investment accounts, so in that calculation I don't include the equity in my house or the value of my car. However, for the expenses part of the equation I do count my monthly mortgage payment.
Well, gee.. you ask my husband and he'll tell you "It's all for the kids" so I don't know what to tell you. I guess I'm moving along with the FIRE movement without actually intending to be at FIRE. It's a great tool, I suppose, just to get yourself in a better financial position.
The first two letters of FIRE stand for Financial Independence. While you and your husband may not be working towards the RE part, the FI part means you have choices and options. Should your husband get laid off, he has a choice about whether to look for another job or to just retire (early or not.) It gives you that same option.
DH and I were pushing for FI and ended up, due to life circumstances, going to RE as well. It wasn't our plan, but it was nice to have that as an option with our work situations not being so good.
I’m baffled in general at the “acceptable stress” of finances that people endure. Whether that’s wasting money on stupid things that leads to credit card debt or societally “responsible” retirement that means withering money is about the same to me honestly. I don’t care if I’m 36 or 86 I expect to see a massive increase (dollars not percent) in my net worth every year. I would tolerate break even if I was over 65, sure, but to watch as my money dwindles away? To me, you didn’t save enough. Investments should be returning more than enough to live on when you retire. But the problem I think is narrow options for most people.
It’s low yield bonds or stocks to most people, not cash flowing commercial real estate or partial interest in a business or something like that. All in the name of avoiding risk, which can’t be done short of poor return investments. The idea of having money in stocks and having to sell said stocks for my living expenses sounds horrible. The idea of stashing excess money in stocks and not touching it except as some sort of “oh that’s there, cool” fund is a lot better. Like gee I’m 70, ok I have $2 million in stocks I don’t need, sure I’ll buy that condo in Hawaii why not?! But not “well shucks time to sell off some stocks to pay the electric bill.” Yikes... wouldn’t make me feel good.
I don’t care if I’m 36 or 86 I expect to see a massive increase (dollars not percent) in my net worth every year. I would tolerate break even if I was over 65, sure, but to watch as my money dwindles away? To me, you didn’t save enough.
Meh. Market goes up, market goes down. Over enough years it does more of the former than the latter.
Quote:
Originally Posted by JonathanLB
It’s low yield bonds or stocks to most people, not cash flowing commercial real estate or partial interest in a business or something like that. All in the name of avoiding risk, which can’t be done short of poor return investments. The idea of having money in stocks and having to sell said stocks for my living expenses sounds horrible.
There is risk in real estate and business as well.
If the media is accurate with the stories they run twice a week about how the average american can't pay an unexpected $500 expense ...
Those stories are bad journalism and even worse economics. They extrapolate from one thing to another when they shouldn't.
For example, I do not have $400 in a checking account or savings account. A shoddy journalist might then deduce I couldn't pay an unexpected $400 expense - but that isn't true. I have very substantial liquid assets and very very substantial investments in equities that are easily liquidated, with an untapped line-of-credit in the many-tens-of-thousands-of-dollars.
There are, indeed, people who are impoverished who cannot raise $400 for an unexpected expense. I'm not one of them, yet a simplistic view of checking account balances would lump the two of us together. There are also people who are vastly over-extended living paycheck to paycheck because of lifestyle choices - $300 cable bill, $200 cell phone bill, multiple $500 care lease payments, $200 landscapers, $150 swimming pool maintenance people, $100 pest exterminators, $500 mobile auto detailers, etc etc etc
It is not helpful to lump all of us together simply because we don't have $400 in the bank.
For FIRE I count my liquid and investment accounts, so in that calculation I don't include the equity in my house or the value of my car. However, for the expenses part of the equation I do count my monthly mortgage payment.
I don't do it that way. Since I turned 50 and started having employment stability issues, I've kept a spreadsheet that says "Geoff can spend $xx per year, COLA-adjusted, and not run out of money." I was financially independent at 50 but I wasn't willing to take the big lifestyle hit to live on that $xx per year. I'm now about to turn 61 and my current $yy per year if I never work again allows me to sustain my lifestyle.
For my calculation, I count my liquid and investment accounts but I also count the net from selling my vacation home at a ski resort I've owned since 1993 and won't own forever. I can put a big dent in my retirement savings over the next 9 years, let my COLA-protected $45K/year Social Security benefit kick in at age 70, and eventually sell my vacation home. I don't count other things like cars, boats, or my primary residence. I view my primary residence as my long term care policy. As a male, it's unlikely I'll need big LTC dollars but it's there as a contingency.
I plan to do it this way - retire in 10 years at 55, then 3% for 10 years up to 65, then 2% from the Portfolio and 2% from SS. It's a hybrid approach taking into account SS.
These are all ways of achieving the same thing. Basically you plan around the nest egg you have and/or the nest egg you will have at the time you will retire, you consider what sources of income you will have (social security, pension, income from rents, etc etc), and you figure out how much you can spend each year to make your money last. That includes being flexible as needed and within reason.
Understanding when FI has been reached is the biggest and most important factor IMO. The math doesn't change, but many people don't know there is a point called FI or how that point is determined. I didn't know about FIRE until about 3 or 4 years ago.
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