Tag: building wealth

03Aug

Try Out Retirement Now with “Trial FIRE”

Retiring early is a desire many people have. Maybe this is also your goal and this is why you came to this blog! However, getting to actual FIRE can be a lengthy process. You may not want to wait until you are 100% FIRE to get a taste of what early retirement will be like. How can you try out early retirement in the near term, even if you are not yet in a position to permanently retire early? Well, just like you would test drive a vehicle before making a purchase, there are ways to get an early “taste” of retirement life before achieving FIRE. Let’s call this “Trial FIRE” 

Trial FIRE = Some length of time where you try out retiring early, with the safety net of a job (or plan) to return to traditional work 

What are some reasons why might want to Trial FIRE? 

  • You don’t really know if want to retire early. You may be concerned that you will be bored, miss the social interactions of the workplace or feel a void in your personal fulfillment by not working in a traditional work setting. Trial FIRE can help you to see what the experience is actually like, with the safety net of a plan to return to the workplace. 
  • Your FIRE date is a long ways off and you need a break NOW. You may have been working hard for years and have made great progress on your journey to financial independence. You have built up enough wealth that you are not paycheck to paycheck. You have lowered your expenses to a rate that has allowed you to save a large chunk (hopefully 50% or more) of your income. You can’t yet FIRE, but you need a breather on your journey. 
  • There are things you want to do NOW. You have things that you want to do or experience now and you don’t want to wait. Maybe it’s a trip around the world. Maybe you want to spend more time with your kids. Perhaps you want to start a business. If you just had some time, you would choose to do those things now, instead of waiting for FIRE. 

Ok, fair enough. There may be compelling reasons to Trial FIRE. But you may wonder how to pull this off. How can you Trial FIRE without completely ruining your finances or derailing your FIRE journey? Here are some ideas: 

Take a Long Vacation 

The most lightweight version of Trial FIRE. You are still getting paid and your job is waiting for you at the end. Most people at most take a week off at a time. That really is not enough time to Trial FIRE. By the time you get relaxed, you are already thinking about going back to work. The minimum time for a Trial FIRE that I recommend is 2 weeks. 

Since 2002, the longest break I had taken from work was 7 consecutive work days, which works out to about a week and a half. This summer for the first time ever, I took a 2 week vacation at a beach house and I was really surprised at how much of a difference I felt in terms of detachment from work by adding on that second week. I got into a rhythm, felt a routine and experienced on a mini-scale what retired life could be like.  I read books, cooked meals, walked on the beach and rode bikes. I spent hours of one on one time with my kids. I felt relaxed and focused. I took the time to THINK. It was great! I learned a little about what I would want my own FIRE experience to be like as a result. 

If this sounds good to you, I encourage you to save up your vacation days and try to take 2 weeks (or more) off. Talk to your manager in advance. Work hard before your Trial FIRE so that things are in order while you are out. Come back recharged and more focused on attaining your FIRE goal, since you know what it tastes like! 

Paid Sabbatical or Leave 

Some companies offer paid sabbaticals or leaves at certain cadences, such as every 5 years. These may be for a month, 6 weeks or more in length. Not all companies offer them, but they are more common in academic environments or big tech companies. If your company offers one of these definitely take advantage. 

If you have a full month or more off, you will be able to do more with your Trial FIRE. You may be able to do some extended travel, deep dive into a passion or hobby or even get your own business started. By having the safety net of the job waiting for you, you can dive into these endeavors 100% and really get to explore. This will give you a great idea of what FIRE could be like. It might also give you some extra impetus to speed up your path to FIRE when you return since you have gotten to experience a taste of your dream for a decent chunk of time! 

If you are able to use your paid sabbatical to start a business, this may plant the seed to an additional income source. This can accelerate your FIRE journey. It can also pave the way to an income stream that will support you after you retire from your day job. 

I happen to work for a company that offers a sabbatical every 5 years and I look forward to taking advantage sometime in 2024. Right now, I am not sure exactly how I will use that time, but I am viewing it as a chance to learn more about what I want out of FIRE. 

Parental Leave 

Some companies offer very generous parental leave, in addition to the mandatory time off that may be required by the law. Some offer 4 months or more of paid parental leave, which is an awesome opportunity for new parents to explore FIRE. This is especially helpful if you are pursuing FIRE because you want to spend more time with your kids while they are young. 

I have two kids ages 13 and 4, with a baby on the way! I am planning to take some extended parental leave next summer. This will give me a chance to bond with the baby, support my wife AND get to spend extra time with my older kids. I think especially the 4 year old will need some extra attention as she deals with not being the youngest anymore! The older I get, and the more I see my children changing, the more I realize how precious these moments are. I don’t want to miss anything! My goal is to build a lifetime of memories I can look back on and cherish when they are older and gone.  

One of my main motivations for financial independence is to have the chance to spend more time with my kids. I am looking forward to my parental leave giving me a taste of what that life could be like, over a 3 month period. 

Unpaid Leave 

Perhaps a 2 week vacation is too short for you and your company does not offer a periodic sabbatical. What else can you do? Depending on your situation, you may consider talking to your employer about an unpaid leave. While every employer is different, they may be open to discussion about taking some unpaid time off. 

You should consider carefully whether or not this is a good option for you, as everyone’s circumstances are different. Taking unpaid leave could be detrimental financially and to your FIRE progress if you are not in the right position to do so, or have not planned accordingly. You also want to consider things like how benefits will be handled if you choose to take unpaid leave.  

Take a Year Off 

Taking a full year off is probably the closest thing to simulation of FIRE that you can do. A full year gives you an extended experience and plenty of times to see the good (and potentially bad) side of retiring early. You also will likely have the chance to accomplish things from your bucket list, such as seeing the world or immersing yourself in a passion project. A year will probably give you a very good barometer of what FIRE will be like and help guide you into what you want FIRE to be. It also might be a fantastic way to take a break and experience something awesome while you are still young, and then pick up the FIRE journey again a year later. 

Taking a year off is pretty serious. You really need to do your homework and understand if you are in a position to take a year off. Not only do you need to consider the financial side of things (including healthcare benefits, etc) but career impact. Depending on the industry or type of job you will want to return to, reentry into the job market may be difficult and take some time. So have a good plan, understand all the risks and give yourself a cushion if you choose to take a year off. 

The Bottom Line 

Trial FIRE can be an awesome way to try out what retiring early will be like before you actually achieve FIRE. There are small options like taking a long vacation all the way up to taking a year off! Do your research before deciding if Trial FIRE is right for you! 

31Jul

Slippery Slope Spending & the $200 Haircut

Buidling wealth on the road to financial independence can be hard. One of the keys to success is to manage your expenses and avoid wasting money on things that don’t really add value to your life so you can invest as much of your cash as possible to build for the future. 

Let me tell you about how I used to get $200 haircuts… 

No, I didn’t actually go to some upscale salon and pay $200 for a haircut. However, what was INTENDED to be a quick run out for an average priced haircut regularly turned into a much more pricey affair. Let me tell you how. 

Roughly once every 4 weeks, my son (age 13) and I need haircuts. There is a chain salon about 10 minutes from our house. You know the cool place where you can watch sports while you get your hair cut, and they even have hot towel treatments and massages while you are there! Of course, none of this is free, and if we both got a haircut and the towel treatment, we were looking at $60 total, including tip. It felt like a bit more than what we should pay for haircuts, but it was so much fun! 

Well the fun didn’t end there. My wife and daughter would usually come with us. Conveniently, just a few doors down from the haircutting place there is a nail salon, and often my wife would get her nails done to pass time while we were getting haircuts. Again, this is an enjoyable experience, but not cheap and she would usually spend about $50 including tip. 

Running tab so far.. $110. 

Now the haircutting place and nail salon are in one of those typical suburban plazas. Starbucks, Moe’s, and ice cream shop, Jersey Mikes, an upscale liquor store, yoga studio and two sit down restaurants (among other places) conveniently located mere feet away from where we got our hair cut. Since we would usually go out for haircuts on a weekday evening, it would be 7:00 PM by the time we were done and we would be hungry with no dinner plan. Naturally, it was very easy to go the convenient route and walk across the parking lot to eat at one of the fun/hip restaurants in the plaza. Three adult entrees, a kids meal, milk, apple juice and a couple of beers later and our bill would be in the $60-80 range, including tip.  

Running tab for the evening $190. 

Just like that, in about an hour and a half, we went from getting haircuts to spending 20% of a GRAND! How did this happen? What led to this snowball of unplanned and unnecessary spending? 

The Slippery Slope of Spending 

We had hit the slippery slope of spending. What started out as quick errand out had morphed into a large purchase. And our story isn’t some crazy outlier. Lots of people (and maybe most typical American consumers) have evenings like this all the time and think nothing of it. I know this because in this particular plaza, its actually hard to get a parking spot and the restaurants regularly have 1 hour waits, on a WEEK NIGHT! 

WARNING, WARNING, WARNING – This is the type of spending that over time will completely derail a journey to achieving financial independence! Sure it seems small, but over time, these types of purchases add up and the opportunity costs actually compounds. 

So what can you do to avoid the slippery slope of spending? Here are some things that have helped us. 

See The Problem 

You won’t realize you have an issue with slippery slope spending unless you actually LOOK and THINK ABOUT what you spend. This requires a few actions on your part: 

  • Track your spending! If you can’t see where your money is going, you may not realize you have a problem. Don’t worry, there is a really useful tool out there that can help. I have been using Personal Capital to track my spending and net worth, and it makes analyzing your spending trends REALLY EASY. 
  • Review your spending trends consistently! You may track things for a while and think you are doing fine. However, these trends can change slowly over time and bad habits can creep in without you even realizing it! 

Plan Your Spending 

Slippery slope spending is unplanned. We had the intention of just going and getting haircuts and then going right home, but we added on more spending because we saw them and they were “convenient.” That is how advertising works. In fact, the plaza was probably DESIGNED in a way to maximize people’s spending by packaging everything they might need for a “regular night out” with very minimal effort. If we had a firm plan in our minds, we would have stuck to the singled errand and saved $120. 

Also, please do not underestimate the “hunger factor” especially if you have kids. If you choose to run to the store on an empty stomach, or during the time dinner normally takes place without a plan, it’s very likely that you will end out eating from a restaurant unplanned.  

  • Plan shopping trips and errands for times that are between meals 
  • Bring snacks if you will know you will be hungry 
  • Eat before going out 

Batch Shopping Trips 

Reduce the opportunity for slippery slope spending by batching your errands into larger, less frequent chunks (maybe weekly) instead of more regular (or daily) trips out. By batching your trips you will be more efficient and have less opportunity for unplanned spending. Other benefits include: 

  • Less driving from fewer trips = savings on gas and reduced wear and tear on your vehicle 
  • More time from fewer trips 
  • Opportunity to plan a shopping trip during a less busy time of day (early mornings, etc), reducing stress and saving time 

Eliminate Certain Errands 

You know what the best way is to stop paying for haircuts? Get your hair cut for FREE at home. When the pandemic hit, my wife purchases a basic haircutting kit from Amazon for $33, watched some YouTube videos on haircutting and started cutting our hair. Sure the first few cuts were a bit rough, but with some practice she has gotten really good at it and our hair looks just fine! We save $60 a month vs going into the fancy salon and we have reduced the opportunity for slippery slope spending. Additional benefits: 

  • My wife learned a fantastic new skill. Not only can she cut our hair, but it’s possible in the future she could expand on this skill and pursue haircutting as a career 
  • Time is saved. Haircuts went from an evening out (2+ hours) to a 10 minute affair in the living room 

Reward Yourself 

All this saving talk doesn’t mean that you don’t reward yourself for making these choices. For us, the biggest reward is saving for financial independence and building for things that have real value. We know that a fancy haircut or a meal out is not what will make us happy and content. We have been saving the $60 saved in haircuts in a brokerage account and are having fun watching that account grow over time! We also plan meaningful meals out that we know we will really enjoy and remember as a treat.  

Financial independence will not happen overnight. It is achieved slowly over time with good habits, discipline and planning. Contentment with what you have is a huge help along the way. Avoid the slippery slope of spending on your journey to building wealth for the future!