When the coronavirus pandemic hit, some pundits leapt to the conclusion that “the FIRE movement is dead, long live the FIRE movement!”
They couldn’t have been more wrong.
More than ever before, the core values of reaching financial independence ring true. When a recession hits, who doesn’t wish they’d saved more money? Who doesn’t wish they’d invested more to create passive income, that they didn’t need their 9-5 job to pay their bills?
But you don’t have to be financially independent to gain all the benefits of the FIRE lifestyle. When you save and invest more money, and rely less on your day job to pay the bills, you enter a virtuous cycle of saving even more money. And no one says you have to retire; the “retire early” part of the FIRE acronym remains entirely optional.
Yes, I love the idea of total control over my time, of working becoming 100% optional. But even while on the journey to financial independence, I still get most of these benefits.
1. Recessions Pose Less Risk
In a recession, the greatest risk to any family is loss of income. If you lose your job during a recession — as happens to all too many people — it’s not easy to find another again.
Which leaves you with bills to pay but no way to pay them.
Unless, that is, you have real estate cash flow, dividend income, and other forms of passive income to cover most or all of your bills. In that case, the income from your investments can help carry you until you find a replacement job.
The coronavirus pandemic has caused the highest unemployment since the Great Recession. With nearly 40 million Americans out of work (and counting), each and every one of them would be better off with lower living expenses and more passive rental income.
And, generally speaking, real estate markets actually weather recessions quite well historically. Take a look for yourself:
The only recession in recent memory where home prices dropped was the Great Recession. Which, in many ways, is the exception that proves the rule: it was actually caused by a housing bubble, rather than the other way around.
2. You Don’t (Necessarily) Need Life Insurance
Someone asked me recently how much life insurance I had. I shrugged and answered “None,” despite being married and having a child on the way.
“What?! Isn’t that irresponsible?!”
No, for two reasons: low living expenses and a relatively high net worth. Both byproducts of the FIRE lifestyle.
My wife and I live entirely on her income (which is not high, at around $40,000). My income goes straight into our savings and investments. So if I get struck by lightning or COVID-19 and croak tomorrow, I know my wife and daughter can get by just fine on her income alone.
In addition to that income, they’ll have a healthy nest egg to lean on if needed.
Contrast that against a family with a more average 5% savings rate, where the parents spend $0.95 of every $1.00 that enters the house. If one parent dies in that scenario, the family is in for a rude awakening financially.
So they protect their expensive lifestyle with life insurance.
Granted, even some families pursuing the FIRE lifestyle may need life insurance under certain circumstances. If one parent has high income and the other partner has no income and no marketable skills, for example, they would be in trouble if the earning partner died before reaching financial independence.
But in general, a family with a high savings rate, low living expenses, and strong passive income doesn’t face destitution if one parent dies.
3. You Don’t (Necessarily) Need Disability Insurance
The same logic applies to long-term disability insurance. It exists specifically to protect against a breadwinner’s loss of earning potential — but financially independent families don’t rely on a day job to live.
Nor do you need to be financially independent to dodge long-term disability insurance. With low living expenses and a strong portfolio, your family can potentially absorb the loss of one partner’s income.
Again, it depends on your personal circumstances. The more heavily you rely on a single partner to generate all the family income, the more you potentially need long-term disability insurance and life insurance. But the closer you get to financial independence, the less you rely on a job to cover your living expenses, and the less you need this insurance.
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4. You Can Better Negotiate Your Salary and Benefits
One of the keys to successful negotiation is not needing the deal as badly as the other party. And when you’re financially independent (or at least on your way), you don’t need a job to live.
That frees you to negotiate more assertively, asking for greater pay and benefits. You don’t live in fear of your prospective employer pulling the offer. If they do, no sweat; you can keep looking until you get an offer worthy of your awesomeness.
And a job that makes you genuinely, deeply happy and fulfilled.
5. You Can Choose Your Perfect Job
If money were no object, what would you do for a living?
The practice of lifestyle design involves creating your perfect life, from what you do for work to your hours, from where you live to your family life. Spoiler alert: the more investment income you have, the easier it is to take a pay cut to live the life of your dreams.
Ditch the golden handcuff. Spend less, invest more, generate more passive income. Every dollar of passive income you bring in marks one less dollar you need to earn from your day job, giving you more and more flexibility to work lower-pay, higher-passion jobs.
6. You or Your Spouse Can Stay Home with the Kids If You Like
Take money out of the equation. Would you and your spouse continue working, or would one or both of you prefer to stay home with the kids?
Some people love what they do and prefer to keep working. Others hate their jobs and would love nothing more than to stay home with their kids.
There’s no right or wrong answer to working versus staying home. But the closer you are to financial independence, the more it becomes a choice.
You can also save money on a nanny or daycare in this scenario too — an enormous expense for many young families.
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7. Work from Home, Cut Work-Related Costs
As many workers have found during the coronavirus pandemic, working from home comes with plenty of perks.
Sure, you get to work in your pajamas if you really want to. But that’s just the beginning.
As you start gaining traction on lifestyle design and financial independence, consider telecommuting full-time. It gives you infinite flexibility to live and work anywhere (more on that momentarily), and more flexibility to set your own schedule.
It also lets you cut out many work-related expenses, starting with your commute. The average American spends 26.1 minutes commuting each way, according to the Census Bureau, which accounts for over $2,600 every year per the Citi ThankYou Premier Commuter Index.
That says nothing of the quality of life impact of wasting almost an hour every day commuting. Or the environmental impact of driving thousands of miles every year.
Beyond your physical commute, you can save money on work clothes. I own almost no professional attire; I have casual clothes, workout clothes, and upscale social attire, but almost no dreary business suits. Which saves me a lot of money every year.
Then there’s the fact that you don’t have to pay high taxes, high housing costs, or high cost of living to live physically near your work.
8. Geoarbitrage: High Income, Low Cost of Living
My family and I live in Brazil, where I enjoy low cost of living but an income in US dollars and a strong exchange rate. Which is how we can live a comfortable lifestyle on my wife’s $40,000 income.
While you don’t have to go quite that far, you can still lower your living expenses by moving somewhere less expensive, even as you continue earning a strong income while telecommuting. For example, the median home price in San Francisco is $1,447,191 according to Zillow. On the beautiful shores of St. Petersburg, it’s $232,838.
You can even take advantage of fun alternative housing to travel and see the world, all while continuing to work!
Nor do the savings end at real estate prices. The combined tax burden in New York, for example, is nearly three times higher than in Delaware. Which is precisely why Americans are increasingly leaving high-tax states in favor of lower-tax alternatives.
9. Lower Your Taxes
I love all the rental property tax deductions. They make for one more compelling reason to invest in real estate.
But the pursuit of financial independence comes with its own tax benefits. With a higher savings rate, you can invest in tax-sheltered accounts like IRAs, 401(k)s, HSAs, and 529 plans, and reduce your tax liability either now or in the future.
By lowering your taxable income, you can also avoid slipping into a higher tax bracket. In fact, as you grow more financially independent, you see some amazing tax benefits from semi-retirement, maximizing your take-home income relative to hours worked.
And the more of your income streams in from investments, the less you can expect to pay in taxes. The IRS taxes some types of investment income, such as capital gains from selling real estate, at lower levels than regular income. If you don’t feel like paying even the lower capital gains tax rate, you can always use a 1031 exchange to defer taxes entirely and buy a new rental property!
What’s Your FIRE Ratio?
The greater the percentage of your living expenses that you can cover with passive income from investments, the less you rely on your day job. And the freer you are to do, well, whatever you want with your life.
That percentage is called your FIRE ratio — calculate it using our free FIRE calculator, along with a timeline for reaching financial independence.
Start looking into more ways to invest for passive income. Research real estate vs. stocks for financial independence (hint: invest in both). Look into how to buy your first rental property, or buy fractional shares in a rental through Arrived Homes or our Co-Investing program. Explore passive real estate funds such as Streitwise, Fundrise, or Diversyfund.
Most of all, start designing your perfect life. That includes your job, your hours, the city and neighborhood where you live, the choice between telecommuting or in-person work, and your family life.
The only limit is your imagination, and your dedication to living your ideal life.♦
What are you most looking for, out of the FIRE lifestyle? What perks are you already seeing, even before reaching financial independence?
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About the Author
G. Brian Davis is a landlord, real estate investor, and co-founder of SparkRental. His mission: to help 5,000 people reach financial independence by replacing their 9-5 jobs with rental income. If you want to be one of them, join Brian, Deni, and guest Scott Hoefler for a free masterclass on how Scott ditched his day job in under five years.
Couldn’t agree more on some points. Since the pandemic hit, it compelled me to think another source of passive income. Yes, I still have faith in FIRE movement. I was thinking to invest in a real estate business. You said, you and your family live in Brazil for lowering your living expenses. Why Brazil? I am currently living in San Diego, but I’ve been wondering recently if it’s worth the high cost of living.
Hey Mike, we chose Brazil because that was one place where my wife was offered a job, as an international school counselor, and there was a lot we liked. We can live without a car here, because the school is in such a walkable area. They provide free housing for us, for employer house hacking. And it’s a low-crime city (Brasilia). We’re in a great position, but we worked hard to create this lifestyle very intentionally. It didn’t just happen.
As for San Diego, it’s a beautiful city, but VERY expensive. Whether the cost is worth it is entirely up to you!
Yes, it’s very smart to move to a country where the currency conversion favors you. I’m thinking about moving as well, a great way to start a radical change in your lifestyle. Great article1
Thanks Chelsea, and best of luck with your move if you decide to take the plunge!
Spot on working at home to cut costs. My saving rate is higher and no more office or commute related stress.
Glad to hear it Grace!
I’m building streams of passive income to live along the coast in Europe, live on a boat and travel with my fam. We all need a “why,” right?