Long time no blog! I am using this time of quarantine as a way to get reacquainted with the wonderful habit of journaling and blogging with a first person voice, keeping you and me entertained in the process. You may feel like you have missed a few episodes, or rather a whole season! I will try to catch up as we go. In the meanwhile, stay safe and wash your hands 🙂
Today the US crossed the 100,000 mark for coronavirus cases, and as I watch the slow motion tsunami that is about to overtake us and over 3 million new people are filing for unemployment, I am beyond grateful for financial independence.
I have been following the rise of the FIRE movement from afar, because I have never been one for big groups and affiliations, plus I crossed the finish line when most were thinking about getting started. And shouldn’t personal finance be personal?
Reach Financial Independence was named that way because this is an FI blog. Not a Retire Early blog. It is a “get enough money to do whatever you want to do with your life” blog. If that whatever is early retirement, cool! If it is a career pivot, becoming an artist, staying home with the kids,… cool too!
And that is where the FIRE movement got a lot of bad rap, because people imagine we all want to do nothing and drink cocktails in a hammock until we die.
Many of us also wanted to get there too fast, and were maybe a bit too optimistic when doing their asset allocation or leveraging themselves with real estate.
Now it looks like a lot are freaking out because their plan wasn’t as solid as they thought. Too much leverage, a tight dependency on the 4% rule, no cash buffer,…
Most plans fail to account for a black swan. I have even found myself writing about my multiple streams of income, and saying the likelihood of my Guatemalan guesthouse lacking tourists AND my UK rental not cash flowing AND my online income not providing for my lifestyle AND my freelance stuff drying up was pretty unlikely. And yet here we are.
And nothing is changing in my life. Because my houses are paid for, I can close them and sleep soundly until they reopen. Even the cabin I am building in Colorado is costing me $500/year in property taxes and that’s it (solar and well cost nothing on a monthly basis).
I am sitting on a bunch of cash right now. I am concerned about inflation and my paper money being worth less tomorrow (or worthless!), but I am at least able to pay for my living expenses for several years before I have to sell any investments.
I am not saying my plan is ironclad, but it will take at least three years before I would have to start acting any different.
When times were good and the markets were hot, that was probably a move that cost me a lot of money. But now that times are dire, it saved me from losing a lot of money. And my sanity. So I’ll take safety any day.
If that’s not the case for you, it is time to rethink asset allocation. You may be too dependent on market fluctuations. Keep enough cash reserves, and resist greed when times are good. Resist the temptation of buying too many rentals on leverage, of being strapped for cash, of trying to get the best returns at all costs.
I had to restrain myself really hard not to follow that path of risky quick wins. Life helped a bit because as a foreigner, it is almost impossible for me to get traditional credit. I had to build my houses in cash. Again, I could have made way more money by getting a mortgage and investing the difference, but I am glad it panned out this way. I do not need more. And you probably don’t either.
A FIRE budget is not what you are spending today. Your house will probably be paid for, and if you use geographic arbitrage like I do, you may live somewhere else for a fraction of your current expenses.
This crisis is a great reminder to all of us who wanted to check out early, to make sure we are comfortable with our financial choices. Because the “I can always go back to work” may not be true in light of current events.