Well, the FIRE movement it seems is at an identity crossroads. With house prices historically unaffordable, FIRE is dead. Inflation put FIRE on wobbly legs, but sky high real estate costs delivered the knock out blow. Or so some have declared.
Is FIRE now impossible for those who did not retire early and/or buy a house before the post-Covid real estate frenzy?
Two spiritual godfathers, Mr. Money Mustache and The Financial Samurai, have come to opposite conclusions, and the internet retirement police and pundits naturally have lost their minds.
What are we to make of this? Is it truly impossible to FIRE now?
Samurai goes back to work
The Financial Samurai who famously gave up a $0.5M annual salary to retire at 34 says he is going back to work because he is no longer financial independent after parting with millions in cold hard cash to buy a new house.
The internet naturally has lost its shit, given that Sam Dogen has been retired over a decade and makes over $300K a year as a FIRE blogger. If he is going back to work the rest of us are f**ked, I guess.
Samurai FIRE
Dogen’s argument is pretty simple. FIRE is the point when your investments generate “passive income that covers basic living expenses” (italics mine). And after buying an expensive house, Dogen’s passive income can no longer pays all his bills. Sounds reasonable enough.
Only problem is Dogen’s basic living expenses are exceedingly high at his stated annual budget of $288K. If that’s basic, then what the f**k is rich?
The other problem with Dogen’s FIRE deals with the semantics of “passive income.” In Dogen’s Fat FIRE world, you can never sell investments, and only the income from your assets counts as passive income (rentals, dividends, and interest). Thus, to achieve $288K in annual after-tax passive income, Dogen’s FIRE number is $10M or more.
This figure is so absurdly high that it’s no wonder Dogen is going back to work. But does that mean FIRE is just as unreachable for everyone else? Hardly.
FIRE for the masses
Let’s get real here: Samurai FIRE is complete hogwash. If I’m being generous, I’d say its an ambitious personal goal for a high wealth entrepreneur like Dogen – whatever floats his Fat FIRE boat.
But a more honest read is this is clickbait nonsense from a seasoned and well-compensated FIRE media figure. His histrionics seems to have paid off, given the amount of media outlets that were attracted to his shock bombs, like mosquitos to a bug zapper.
And when a 9-5 grind fails to materialize, he’ll be preaching FIRE once again, claiming that his real estate and stock investments were enough after all.
Average investors beware. FIRE is no less viable just because of high housing costs. Samurai FIRE is a fun thought experiment for high net worth individuals, but for the rest of us it fails for two reasons:
- Basic living expenses are low for average Americans. The average American family budget in 2022 was 1/4th Dogen’s at $73K. An investor needs about $1.7M to FIRE on this budget. This figure is accessible to most gainfully employed Americans. Some people even achieve FIRE on less than $1M by subscribing to a lifestyle that costs $40K or less a year.
- FI is not exclusive to passive income. FIRE walkers should expect that both passive income (dividends/interest) and capital gains (i.e. selling stock/bond funds) are sustainable ways to support living expenses. The math demonstrating that your money will last 30 years or more with such a strategy (e.g. the 4% rule) has been studied to death by people with far more financial expertise than Sam Dogen.
The Stache says to Move
FIRE’s mustachioed frugal superhero, Mr. Money Musache, in a recent blogpost also took on the topic of real estate inflation.
His take? Yep real estate costs are out of control right now, but unlike Dogen, he concluded that FIRE is no less viable as a result. Rather than go earn more to overcome high real estate costs like Dogen, the Stache recommended, like usual, not to blow money keeping up with the Joneses.
His solution? Stop being a complainy-pants and move somewhere cheaper.
While his position on inflated real estate generated less pitchfork-clutching mobs than Dogen’s, it still nonetheless takes a pretty provocative position.
Certainly, I can’t argue with his logic: its impeccable. As a matter of fact, I myself am planning a retirement move to a state with a better quality of life and more affordable living expenses/taxes.
But I can’t shake the feeling that moving to beat real estate inflation is a position too extreme for most people. To be fair, Mr. Money Mustache does pair this financial decision with quality of life/location considerations. But he what he doesn’t do is present an even more obvious solution:
Just don’t f*cking buy a house right now.
You don’t have to move, pick up a side hustle, invest in crypto, cheat taxes, or reuse butter tubs to FIRE. And you don’t have to buy a new electric car, a new house, a new iphone, a new deck, or anything else right now either.
Other than food and current housing expenses (whether you have a low interest mortgage or you rent), you don’t have to part with any of your cash right now.
The time element of money
In finance, everything is subject to the laws of supply and demand at a moment in time.
3 years ago banks paid ~0% on deposits, but now many pay 5%. Mortgages were as low as 2.5%; now they are over 7%. McDonalds hashbrowns were a buck a pair, and now cost an insulting $3 each.
What to do with all this volatility?
Its simple. Buy when its a reasonable value; when it isn’t, leave your cash invested until the market shifts.
Don’t buy eggs when avian flu decimates supply. Don’t buy an overpriced new car when your beater runs fine. Don’t take out a 10% HELOC to replace a deck that can last another year.
And if buying an overpriced house with a 7% mortgage destroys your FIRE plans, then don’t f*cking buy it . . . right now.
In time, supply and demand dynamics will shift in the other direction. This is just capitalism working like it always does. America will sell anything to fools willing to pay any price. And it will discount those same goods when they collect dust on the shelf.
The essence of FIRE is recognizing this dynamic and making smart decisions.
So yes: housing and borrowing costs suck right now. But its not the end of FIRE. In fact, we need FIRE now more than ever, or else rampant consumerism will have all our lunches.
You have a choice. Blow money like a frat boy at a strip club and be work dependent (a fate even the venerable Financial Samurai could not avoid), or spend your cash wisely and be free. The choice is yours.
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