You say you want FIRE?
You want to become financially independent and retire early?
Well, there are a lot of things you have to commit to in order to make that happen.
One thing you must do is, be totally aware of every single dollar coming in and going out if you ever want to become financially independent.
You must track every single penny of income and expenses – and you should be able to rattle off your savings rate right off the top of your head.
You should know, exactly, how much money you’re spending.
Said another way, you must know your burn rate.
More importantly, you must control your burn rate, keeping it as low as possible. You should be trying every trick in the book to keep those expenses as low as possible.
But in order to control that burn rate, and keep it low, you must know it inside and out.
If you want FIRE, you must know and control the burn.
If you don’t know and control the burn, you won’t have FIRE.
That is practically guaranteed.
Known Income, Unknown Expenses
I had a job in the auto industry for about eight years, working as a service advisor.
Getting to know your co-workers involves, at some point, discussing money a bit.
My discussion of money in a greater sense and at a greater scale has obviously occurred through the process of writing more than 1,000 articles and a best-selling book about saving, investing, and achieving financial independence.
And coaching individuals on their way to FIRE has enhanced this familiarity even further.
What I’ve come to realize is that people, perhaps particularly Americans, are very familiar with their income.
They probably know, almost down to the penny, how much they’re making. If you ask, in confidence, an average American what their last paycheck was, they can probably tell you that. Even asking them how much money they made last year – over an entire year – will likely result in a fairly accurate answer.
I remember my fellow service advisors being very familiar with what their running total of sales was for the month, which would go on to impact their paychecks (we were paid on commission). They’d run these reports daily (sometimes more than once per day). Believe me, they knew full well how much money they were making.
But asking people – almost anyone – how much money they’re spending, exactly, results in a series of “umms” and “hmms”, followed by guesses and roundabout numbers.
We’re not even talking an entire year. We’re talking just what someone spent in the last month.
“Well, my mortgage is $X. And I think I’m probably spending $Y on food, maybe. Oh, but that’s not including ATM withdrawals. I spend a few hundred per month on gas? Hmm. Umm. Well. Hmm. Some of my expenses are paid through an automatic bill payment thingie. Umm. My bank takes care of a lot of this, I think.”
Nope. You take care of this.
At least, you’re supposed to.
If you don’t know and control your burn rate, folks, you’ll never have FIRE.
Track Every Single Penny
You can’t know your burn without tracking every single penny of expenses.
This is absolutely necessary to becoming FIRE.
If you don’t know your expenses, exactly, down to the very last penny, you can’t possibly hope to control/lower them.
Knowing your savings rate is like a having a road map to financial independence. Not knowing expenses, and thus not knowing your savings rate, is like taking a trip to a destination without knowing what direction you’re traveling in or even what speed you’re traveling at. It’s almost impossible.
I’ve been tracking every single penny of expenses for around eight years now.
I would load up my accounts on Mint and Personal Capital and see every single penny of income and expenses, along with every single penny of assets and liabilities. I can recite right off the top of my head what I’m making and spending, along with every penny of what I own and where it’s at.
(By the way, I was honored to have been asked by Mint to be interviewed by them a few years back. You can check out that interview here.)
Even today, I still track every single penny.
When I go to the market at night with Oh and spend, say, 150 baht on dinner, I track that and input that data in my account when I get home later that night.
I do this every day.
I simply convert expenses to dollars using that day’s exchange rate, since I live in Thailand and spend in Thai baht.
I know my burn rate.
And then I’m able to control it.
Control The Burn
Controlling the burn rate – a.k.a. keeping your monthly expenses as low as functionally possible – is important for three different but complementary and holistically valuable reasons.
First, the less money you spend, the more money you have to save and invest.
The more money you can invest, the faster you can build a portfolio of assets that generate the passive income you need to live off of.
I was able to become FIRE in six years because I was able to maintain a very high savings rate – I hit a monthly savings rate over 70% many times – and routinely save/invest a lot of money, building my FIRE Fund very quickly in the process.
Second, the less money you spend, the less passive income you need in order to become FIRE.
The less money you spend, the faster you can become FIRE. That’s because you simply need a smaller portfolio, and thus less passive income, to cover your bills.
Plus, it will be far easier to stay FIRE when you don’t have a huge monthly burn that needs constant gasoline to keep lit.
I was able to save and invest a lot of money very quickly because of my low burn rate.
Likewise, and just as importantly, I was able to quit my job so young (age 32) and become FIRE at a young age (age 33) because I never required a lot of passive income in the first place, which was due to a low-maintenance lifestyle that never needed a lot of money to sustain.
I currently spend between $1,200 and $1,300 per month in Chiang Mai, Thailand. And I’m happier than I’ve ever been.
I don’t need millions of dollars to sustain myself. I don’t need a giant fire with a ton of gasoline to keep my FIRE alive. And so not only was I able to FIRE quickly, but I’m able to stay FIRE in an easy and sustainable manner.
The less you spend, the more you can save and invest. The less you spend, the less passive income you need. Controlling your monthly burn rate burns the candle from both ends – getting you to FIRE that much faster by virtue of two dynamics working in combination of one another, complementing each other in a very powerful manner.
Third, a small burn creates a happier, less stressful, and more sustainable life.
The more money you spend, the more dependent you are on everything – global consumption, mass consumerism, economic expansion, etc. – in order to keep your huge portfolio and the passive income it’s generating going.
You need that big fire to remain stoked in order for you to remain FIRE.
That’s a lot of stress.
I see this all the time, where even people who quit their jobs in favor of FIRE are constantly worrying about and thinking about money, politics, the economy, their passive income, stocks, and whatever the hell else.
What a terrible retirement, in my opinion.
Why become FIRE if you’d rather actually be on fire?
It’d be more pleasant for me to go back to my crummy old job than sit around all day and stress out about money and whether or not things will hold up for me.
No, thanks. A huge NO to that for me.
Spend less, worry less. Financial freedom is being free even from a lot of spending and passive income.
Being financially free is in and of itself great. But it’s just one degree of freedom. You should aim to be free even of money itself.
As the movie This is 40 taught us: “Have a small nut; that’s the key to life.”
If you have a small burn rate every month, you’re pretty carefree and happy. You’re freed up to try things out, have fun, and see what your FIRE looks like.
You have very limited downside, while you also have near-unlimited upside due to the power of the compounding snowball that will roll like crazy for you when it’s not being slowed down by the heat of a big burn.
Meanwhile, spending less gives you an opportunity explore what real happiness looks like.
Money doesn’t buy happiness. I can’t say it any better than I already have.
But having a massive monthly burn can bring about a life that appears to be nothing more than a charred shell. Not only does money not buy happiness, but building a life that functions around a monthly burn that’s too high can, and likely will, burn you up.
Elizabeth Holmes, founder and former CEO of Theranos, currently under indictment for wire fraud, once relayed a story about setting herself on fire (in the figurative sense) during a commencement speech at Pepperdine University.
She stated that over the entry to one of the buildings at the university was a sign that read: “Success is not the result of spontaneous combustion – you must set yourself on fire.”
Well, Holmes probably should have scaled things back a bit.
But what I want to say here is, FIRE is not the result of spontaneous combustion, either – you must know and control the burn. If you want FIRE, pretend like your budget is on fire – every expense is an emergency to attend to.
Track every expense. Lower them as much as you can. Save and invest more. Become FIRE faster.
Then live a pleasant life with little stress. You don’t want to become FIRE only to find out you’d rather be on fire.
What do you think? Do you know and control your burn? Have you found it vital to becoming FIRE?
Thanks for reading.
Image courtesy of: vectorolie at FreeDigitalPhotos.net.
P.S. If you’re looking for ways to know and control your burn so that you can FIRE faster, easier, and more happily, check out some great resources that personally helped me achieve financial freedom at just 33 years old!