Why FIRE Never Would Have Worked In The Past

The latest buzzword in the personal finance community is FIRE.  Many of the most successful blogs now talk about FIRE.  For those that don’t know, FIRE stands for Financial Independence, Retire Early.  The blogging community now has many blogs where people achieve financial freedom at a young age, and can retire well before traditional retirement age.  Many boast of retiring in their 30’s.

This is a pretty cool movement, especially in the age where Millennials are breaking many of the molds created over years past.

I started thinking about it.  I came to the conclusion that FIRE probably wouldn’t have been embraced by generations past.

Here’s my take on what I think generational mindsets are regarding FIRE.

Millennials (born 1980-2000s)

I think that millennials are the heart of the FIRE movement.  Many don’t want the traditional life that they witnessed grown up.  This stands to reason that many millennials are at the heart of the FIRE movement.

Generation X (born 1965-1979)

This is probably the dividing line between acceptance of FIRE and skepticism.  Many in our generation have gone through enough recessions that we know things can change.  We’ve seen good times and bad.  The idea of FIRE sounds great, but many may see it as ‘too good to be true’.

Others in our generation still fall in the mindset that each generation should strive to be more successful than that prior.  This has been pretty hard for our generation.  There’s a lot more competition in the job market.  We’re the first generation that saw most of our parents get a pension, but very few of us will.  We have healthcare costs that previous generations did not.  For many in our generation, just trying to keep up with our parents is hard enough. Adding in the goal of early retirement can seem even further out of reach.

Baby Boomers (born 1946-1964)

The baby boomer generation was fueled by consumerism and prosperity.  A lot of wealth was built by boomers.  While making money wasn’t ‘easy’, boomers who worked hard found money flowed in.  For many boomers, making money and achieving wealth was the goal.  The big one.

Simply put, I think many boomers would have asked why they would give up making money when there was money to still be made?

Greatest & Silent Generations (born 1910-1945)

These generations were both impacted by the Great Depression.  Because of this, FIRE would simply not have made any sense to them.  Many here saw what it was like to struggle.  To have nothing.  Many people immigrated and started with nothing.  The idea of retiring early would have been unheard of.  For many in these generations, not having enough money was a giant fear.  Even if they had enough, there was always the fear of what could happen.  Why? Because many here had seen what could happen.

I think many in this generation would have been scornful of FIRE.  To people in this generation, if you were able bodied, you worked.  That’s just the way it was.

The Late 19th Century

In the late 19th century, everything was changing.  Machines were making things easier and creating worldwide growth. Cities and population centers were exploding.  There was so much to do that everybody had to pitch in.  The demands of the world were plentiful, and everybody was expected to pitch in.

I think in this era, anybody who would have attempted FIRE would have been laughed out of whatever town they lived in.

Tribal Days (Going Way Back)

Hundreds of years ago, when we lived in tribes, everybody contributed.  Many tribes expected every person to contribute.  If you couldn’t, many tribes expelled you.  Or worse.  There would have been no FIRE here.  If you had tried to stop working, the tribe would have taken what you have, and sent you away (or thrown you off a bridge).

Kind of makes working seem like a pretty good alternative, no?

FIRE Across The Generations

There’s my take on the generational acceptance of FIRE.  I think that FIRE is a big thing because it truly is a new concept for many.

What do you think of my thoughts? Do you agree on how prior generations would have looked upon FIRE?  What generation are you and what do you think of FIRE?  Let me know in the comments below.

 

 

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Do You Believe These Money Myths?

There are a lot of different things you’ll read when it comes to your money.  The personal finance world has lots of people with many opinions.  I’m one of them!  But with so much out there, it can often get confusing.  What do you believe?  What’s true and what’s a suggestion?  I don’t have all the answers.  But there are a few money myths that I’ve seen come up more than a few times.

#1: Always Pay The Higher Interest Loan First

The higher the interest rate means that less of your payment goes to your principal.  This is true.  So, you should always pay the highest interest loan first, right?

Not always.

I think you have some flexibility here.  If you have a loan with a low balance, maybe consider paying that off first.  It will free up some cash flow.  Plus, paying off a loan will give you a ‘win’ on your scorecard.  Those can be very important and might be worth a few bucks in higher interest in the short term.

#2: It’s Too Late To Start Saving

Many people start saving for retirement or their first home right out of the gate.  If you’re one of those people, then congrats.  But if you’re not, don’t worry.

It’s never too late to start saving.  I don’t care how old you are.  Many people who give this answer are just making excuses to continue bad habits.

I don’t care if you have friends that are your age who are already retiring and you haven’t saved a buck.  You should and you can start making a difference.

#3: You Have To Choose Between Paying Off Debt Or Saving Money

I’ve read at least a thousand pieces over the years on this topic.  Which is better if you have extra money?  Paying off debt?  Or saving/investing?

I’ve never understood why people think it has to be either or.  It doesn’t.

If the answer isn’t clear or you don’t have motivation toward one, why choose?  Try a mix of both.  Either one is going to help you in the long run.  And, you might find that one excites you more than the other.  If that happens, then you can make adjustments.

#4: Having An Emergency Fund Is Good Enough

OK, so you saved $1,000 for an emergency fund.  You’re covered, right?  Wrong.

The fact is that even if you’ve built yourself a cushion, there is still work to do.  What if you have an emergency greater than $1,000?  How will you restore your fund if an actual emergency depletes your fund?  What if someone comes to you with an emergency of their own?

Be prepared.  Think ahead.

#5: Following Someone Else’s Budget Is Your Ticket To Success

A budget that works for someone else may not work for you.  Everybody has different circumstances and different needs.

Also, many people are at different stages of how they can handle a budget.  Someone who’s never used a budget should start simple. If they tried to use the budget template of someone that’s had one for twenty years, it probably won’t work.

Budgets come in all shapes and sizes.  There is no one size fits all.

#6: Focus On Cutting Spending To Save Money

This isn’t bad advice.  It’s actually really good advice.  However, it may not always be the best advice.

After all, the advice here only focuses on one side of the equation.  Spending.  This is great, but there’s also opportunity that comes by making more money.

Consider that we all have limited time in our lives in which we can focus on saving money.  If your time allows you to cut $1,000 per month in expenses, that’s great.  But what if you focused that time on earning more money instead?  If you could earn $2,000 per month with the same effort, then focusing on cutting expenses could actually be costing you $1,000 per month.

#7: The Stock Market Is Always Going To Go Up

It may seem like this is true given that it pretty much has for the last ten years.  But it doesn’t.  And it won’t.  Don’t believe people on CNBC that tell you that ‘this time it’s different’.  And that the market can go up forever.

It’s not and it won’t.

Everybody needs to keep an eye on the market and recognize that it’s not a one way only road.  The experts that tell you that it can only go up probably have a plan in place.  And when the market starts going down, they’ll have executed their plan before they go back on the air and talk about the downturn.  Trust me on this.

The fact is, they don’t care about your money.  They care about theirs.  Don’t get the two confused.

Readers, what advice have you heard that may need some corrections or clarifications?  What do you think about the items I mentioned?  Please let me know your thoughts in the comments below.  Thanks for reading.

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Am I The Only Person A Bit Worried About The Economy?

The economy has been on a pretty good path for the last 8 years or so with slow but steadily improving job numbers, reduced unemployment, and a rising stock  market.  Many have argued that the slow growth is ‘bad’ but I argued a few years ago that slow growth actually provides a more stable foundation and a softer landing when things do start to turn.

I’m starting to wonder if that turn is starting to happen.  Moreover, I’m wondering if we’ve been used to things moving up for so long that people might be missing or ignoring the signs.

I’m not in outright panic mode but here are a few little things I’ve noticed that add up to a little bit of worry (Disclaimer: You should make absolutely no investment decisions based off of this article, which is 100% opinion).

Why I’m Worried About The Economy

  1. The market is in a trading range. The stock market has bounced up and down between around 1,800 and 2,100 for well over a year now.  Anybody that is ‘buy and hold’ is likely seeing little or no profits, with the only people making money are the ones that have learned to trade in this range.
  2. Job growth really seems to be slowing down. For most of the last eight years, we’ve seen month after month of new job creation.  For a long time, people wished it were growing faster, but now seem fairly settled in.  However, the numbers seem to be slowing down, with only 38,000 new jobs created last month, a pale comparison to the hundreds of thousands per month that were created on average even just a couple of years ago.
  3. Job growth numbers are being revised down.  When the job creation numbers are announced, they’re estimates.  The actual numbers come in a few weeks after, and revisions occur as more data becomes available.  In each of the last couple of months, the announced numbers ended up being revised down.  This doesn’t seem a good pattern to me.
  4. A top reason given for equity recovery is kind of BS (and kind of frightening). The first few weeks of 2016 saw a pretty steep correction in the markets, around 10% or thereabouts.  The recovery was swift, and mb-2015-06-chartlast week, the market largely seemed to even shake off the Brexit news.  This all seems well and good, but when I read a lot of articles, blog posts, or comments to the above, one main reason given for the growth in US equities is that people are selling equities in other areas of the world and moving them here.  That’s not a great endorsement.
  5. Another reason is even more scary. We’re in an extended period of ultra-low interest rates.  Debt has been financed on the cheap.  This has left cash on the sidelines that nobody really knows what to do with, so they buy stocks.  This almost seems to me like money is being invested simply because nobody knows what else to do with it.  Again, not exactly a reason high on my list when plotting out catalysts for growth.
  6. WARN Notices are on the rise.  Here in Michigan, when mass layoffs take place, the company must file advance notice with the State.  This info appears on their website specific to this information.  Last year, for the first six months of the year, there were 20 notices filed.  This year over the same period, there have been 32.

No Doomsday Predictions Here

I’m not sounding the alarm and not panicking.  I do think there are signs that the growth, as slow as it’s been, may be flat lining at best.  So far the markets have been shrugging off every bit of negative data that comes out.  Still, I don’t trust markets as any sort of leading indicators these days, not with a majority of shares traded each day being done by computers.

Readers, what do you think about the state of the economy right now? Where do you think it’s headed next?

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What Generation Took The Worst Of The Great Recession?

I was surprised the other day when my wife announced that she was a Millennial.  I originally disputed her on this, but then I looked it up and it turns out that she is right.  My error came in the fact that I had thought she was part of Generation Y.  Then I found out that this generation really doesn’t exist anymore!  Apparently, they’re now part of the Millennials.

The Active Generations In the Workforce

The first thing to do is identify the different generations.  Surely, we’ve all heard about them by now but so we’re all on the same page, and for purposes of my discussion, I’m using the following:

  • Baby Boomers – Born between 1946 and 1964, so anybody between the ages of 52 and 70.Should I stay or should I go?
  • Generation X – Born between 1964 and 1982, so anybody between the ages of 34 and 52
  • Millennials – Born between 1982 and TBD – so anybody younger than 34 but probably not older than 18

Now, a couple of notes.  In relation to the Millennials, the end date is probably still up in the air.  If history holds true where the generational gaps are roughly 18-20 years, then it will probably end up around 2000 before they cut off, but that’ll probably take a few years to shake out.

On the other end of the spectrum, there are of course people older than Baby Boomers, but quite honestly, you don’t hear much about them and they have largely (but not completely) exited the workforce.  Of course that generation is called The Silent Generation, so perhaps they’re just living up to their name. *LOL*

The Perception Between Generations

As I was doing my digging, I started reading through various articles, blog posts, and commentaries that have outlined the differences between the generations.  There are some common themes that I’m sure many are familiar with:

  • People in younger generations tend to blame those in the older generations for the problems of the world
  • People in the older generations often see those in the younger generations as entitled and lazy

I’ve always actually found these generalizations more humorous than anything else, because I’m going to bet that when the Boomers were the younger generation, the older generations at the time probably thought many of the same things, and conversely, I’ll bet that, as an example, when the Great Depression hit, there was plenty of blame assigned to the generation that was running the show by those younger.

In other words, the generational gap is not anything new.  It’s just the way of the world.

So What About The Recession?

It got me thinking that the Great Recession is a few years in our rear view mirror (though you can certainly feel a lot of residual impact), and I started thinking about who might argue that they took it worse.  I decided to jot down a few different impacts that we saw out of the recession, and came up with likely arguments that each group might use to show how they had it worse.

The Housing Market Collapse

  • Baby Boomers –  While many Boomers had built a lot of equity in their homes, as a group they had the biggest and most expensive homes, so the total amount of value lost when the bubble crashed was probably greater than with the other generations.
  • Generation X – Many had come to the age where home ownership was new and had grown quite a bit in the recent year.  They had less equity in their homes when the bubble burst, and were therefore the group most likely to go underwater or lose their homes.
  • Millennials – As a whole, the group here was not largely invested in home ownership, so while the losses weren’t as substantial as with other groups, it probably scared many away from considering home ownership, and other factors that I’ll get into later have made it increasingly difficult to consider home ownership at ages where previous generations entered the market.

Stock Market Declines

  • Baby Boomers.  Many Boomer’s were at or near retirement age.  While the safe strategy is to move further away from risky investments as you get close, the healthy markets had probably made it tempting to stay more invested.  Losses were in greater volume.  They also had a greater impact due to the fact that retirement savings were to be needed sooner.
  • Generation X.   Many in this generation who had started saving for retirement saw a lot of the savings wiped out.  This came at a time where the savings should be counted on to build a foundation for further growth.  Many Gen X’ers had to essentially start over and found themselves behind the curve that they were once in front of.  In addition, Gen X is the first generation where the shift away from a defined pension plan can’t be counted on.
  • Millennials.  While savings weren’t as high, what little the Millennials had built was largely wiped out.  Due to staggering student loan debt, many have not even been able to save for retirement.  The great stock market recovery has largely passed many by who are in this generation.

Job Losses and Stagnant Wage Growth

  • Baby Boomers.  Those Boomers who were still working and did not make it through likely found it harder to find jobs.  Senior level positions were often eliminated and not replaced.  Even if Boomers were willing to take a step backward into a more lower paying job, they were often overlooked.  Employers did not see them as staying long, so jobs largely dried up for this demographic.
  • Generation X. The Boomers that did keep their jobs basically made sure to stay in them.  That, coupled with the lack of new job creation, found many Gen X’ers stuck when they otherwise would have continued up the ladder.  This produced stagnant wages for people in their 30s and 40s.  These losses came at a time when expectations are that income grows significantly.  Even once wages started rising again, there was no catching up, so years of stagnant wages continue to impact earnings.
  • Millennials.  Job losses meant that new jobs weren’t being created.  New graduates who would normally enter the workforce found themselves unable to do so.   Even when employers started hiring again, they were able to be more selective, and looked for people that already have experience.  This makes finding the ‘first job’ that everybody needs a huge obstacle, even today.

So Who Took It Worst?

When you look at the areas above, it kind of boils down to three distinct themes between the generations:

  • Baby Boomers lost a lot of what they already had
  • Generation X lost a lot of what they were building toward
  • Millennials lost the opportunity to get started

Honestly, I think that each generation will lean toward saying that they took it worst.  That goes back to the whole generational gap premise that I noted above.  This gap naturally creates expected bias.  So, since I’m squarely in the middle of Generation X, I would likely put my vote in that group.  However,  when I remove my bias I can see the case that each would make.  I know that this is much more complex than I’ve been able to lay out.

Readers, what generation do you think suffered the most negative effects?

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