You Can't FIRE Without A Budget

We get it. Loads of people don’t budget. We watch our account balances, and ride somewhere in the middle, and go on to the next thing, rather than sweat tracking each transaction, categorizing it, and measuring the activities against pre-determined goals.

I love data. Give me the stats, the figures, the charts, the equations, the anecdotes, the personal experience, the books, the websites, videos, whatever. I want to dive in, and figure out what’s going on. By understanding the data, you can make sense of the patterns. Where there are anomalies, you can explore why.

The Financial Independence/Retire Early (FIRE) movement is about having enough income so that you do not need to work at your job. Maybe you still want to work, great! Maybe you want to travel the world, great! Each of us spends our time and money based on our own unique set of values, preferences, and goals.

In order to know if you have enough income so that you don’t need to work, you need to know how much you are spending. Spoiler alert: in order to FIRE, you need to, at a minimum, have an annual budget to know your annual expenses. You need to know how much you are spending every year, on what expenses, in order to know what your FIRE math is!

Let me sell you on this. Even if you HATE budgeting, tracking what you spend will help you understand your current position relative to your future FIRE position. I’m not advocating for kicking yourself in the shins if you have a couple extra Chipotle burritos one month. Just go back and look and see, big picture, how much was spent, and whether you want to continue spending that way.

If you want to budget every dollar, I know a few brilliant ladies who have had a lot of success with that. I used to be a super budgeter when I was trying to throw every dollar I could find into the debt snowball. Debt-free though, I’ve taken the pedal off the medal to enjoy our steady pace a little more.

Since I don’t do a monthly budget, I care a lot about what the annual budget looks like. I want to make sure our spending aligns with our values and doesn’t start to drift too far into some weird spending pattern. This year, I spent quite a few dollars on seeds and garden infrastructure… because we were setting up our systems. One-time expenses like that are behind us, and I’m glad to know what we spent, but I do not ‘feel bad’ in any way about such purchases; we made them for a reason!

Annual Budget for FIRE

For example, if I just looked at the money that I ‘spent’ from my checking account last year, it would look like we need $44,000 a year, or $1.1 million in order to retire (FIRE = annual expenses x 25 when planning on the 4% safe withdrawal rate or SWR). (We use Mint.com because it allows you to track all of your accounts on one tool, and bin/categorize/label transactions. I’ve been happily using it since 2009!)

But guess what? We don’t actually spend $44,000 a year on expenses! That number also includes our investments (which we don’t plan on continuing in FIRE, we’ll just reinvest the dividends), and also includes expenses we won’t have once we FIRE, like life insurance, “costuming” for work, nearly as much spent on gas…. you get the idea.

To be fair, I can’t predict the future. I don’t know which categories we’ll be spending more in, and which will be less. We plan to relocate to Missouri so that will definitely reduce our property taxes, but we don’t know by how much. So, to be conservative, I’ll just reduce some investing “expenses” to bring down our 2020 expenses a little bit.

Less than a million to retire, heck yes! But we also intent to pay off our mortgage before “retiring.” Like I said, we’re conservative with our risk tolerance, so we’d rather own our home, rather than the bank own any part of it.

So, expenses, less our home mortgage and some initial building costs from moving in…

WOAH! We went from needing over a million, down to only needing just over half a million! WHAT?!? No way! We are sooooo much closer to our FIRE number than I would have guessed. HUZAH! The caveat to that though is we still need to pay off our home on our way to this FIRE number. Since we’re moving to MO, I’m not sure the details of how this will play out. But the more equity, the less debt, and the closer we are to no mortgage, the close we are to punching out one last Friday afternoon after we hit our FIRE number.

$1900 a month in expenses with no mortgage, low property taxes, growing most of our own food, and enjoying a simple life sounds very, very realistic. Because I can see what our expenses are now! We’re not wanting for anything. We live too far away from restaurants to want to eat out any more than we do, plus our food is a lot easier on our tummies. We’d have some months where we spend a little more, or a little less, but since we can see what we’re spending today, we can forecast what we’ll be spending in the future.

The ‘even better’ news? I didn’t reduce our ‘costuming’ expenses related to work. I only conservatively reduced our expenses so there’s built in wiggle room. And if we need a little extra cash? We could plant a few more seeds, grow a little more food for someone else, sell a few extra chickens or eggs, or eat a little more beans and rice meals for lunch. That sounds A-OKAY by me! FIRE ourselves, have all of our freedom, and be happy little clams on our homestead!

So. How do we get to just under $600,000 in assets? Lots of investing, saving, and trying to crack the side hustles on our way to figuring out passive income streams. We do not consider our home or vehicles to be assets, because we live in our home and drive our vehicles. If we sell them, then the profits would be assets for our stash. But until that sale, they’re an accounting liability that costs us money to insure, maintain, and pay taxes on!

campFIRE Game Plan

2021 might be a wild year

But at least we’re starting from a pretty good spot!

Accrue $600,000 in investments for a +$1900/month to support expenses w/ 4% SWR

Pay off our mortgage so we completely own our homestead

Give two weeks notice to our 9-5 employers

Relish in the freedom of being FIRE’d every day

While our game plan is exciting, what helps to pour fuel on our FIRE plans, are passive income streams. These are a lot harder to get set up, so we’re working on side hustles too. Once I write up what I learned last year setting up an LLC and beginning a cottage industry side hustle, I’ll post that article link here, too. Sometimes I think delivering pizzas would be easier, but we’re home bodies and are working to find ways to spend more time at home, not less!

I don’t know when we’ll get there. But we’re conservatively about a third of the way there now! We’re always brainstorming ways to improve our fighting position, fuel our FIRE, and get to enjoying all of our day, every day.

Once you know how much you spend, on which categories, you can calculate your FIRE number. This also helps you evaluate your spending compared to your values. Did you get a little off track? Did you make amazing leaps of progress in some places? As your expenses come down, or income goes up, you can see your progress. And that, crazies, is very motivating. Keep going, you got this!