FIRE Budget

 

This is a post asking the question what would a "balanced life" budget look like and a discussion
on that ultimate personal question of what makes someone happy.

To give some context to this post I start with outlining our unique mindset and how it influenced the path we took - FIRE. Then how we have had to adapt.

I finish with some questions anyone can ask themselves about their money psychology.

Our Money Psychology

My wife and I started living together we setup a joint account and split the bills 50:50. We knew what each other earned and neither of us were extravagant spenders. 

 

I had modest car (bought new but used for 20 years) and student loans of 10K which I was just about to aggressively pay off even though the interest rates were low. I did not like debt. Both of us had avoided spending more than we earned and had no credit cards nor personal loans.

What we did do is spend a lot of our income. We lived in London, went out a lot and enjoyed a holiday yet were disciplined to always pay for these activities in advance.

Our money psychology was aligned. What we did not know at the time was how fortunate we were to be this way.

Another trait was our approach to retirement. Both of us had maxed out our retirement contributions in work. 

After a couple of years living together we started consider the dream of house ownership and started to understand how much of a commitment it would be. This pushed us into saving a proportion of our income towards a deposit. 

At his point we started forming our values / vision and realising were we chasing the wrong goals. We valued time together and achievement over money not keeping up with our peer group which we believed had different values and associated costs.

As we started to understand our combined income and growing wealth we created a joint income, spending, saving and investing budget.....then we stumbled upon FIRE. The full story can be found here.

Our Current FIRE Budget

I was inspired to write on this blog again by my last post of the Netflix Series "I will Make you Rich" and have another look at our budget allocations. The main ones being:

Energy % (Heating, Elec & Transport)	12.8%
Food %	27.2%
Housing Costs %	11.6%
Fun (hols etc.)	19.5%
Savings	7.7%
Education	11.7%

We are a family of 4 so Food is the largest cost we have - teenagers! As everyone is aware this cost has increased a lot in the last year due to "inflation". 

We pay for "private" education which is funded very differently in France where the state still pays for the staffing hence the costs are considerably lower than the UK / US for example. 

Our housing and energy costs are low as we own our property and have energy efficient solutions for our heating (wood boiler and solar panels) and transport (natural gas car). 

We make sure we do spend on fun / holidays and have allocated 19.5% to these areas.

The saving is what is left over each month - we don't mind if we spend it on activities.

Income

All of the percentages are based on our income which is CASH income, some earned income from a side gig and the majority passive income. 

We do not base our spending on our total assets including future pensions. We do not apply the 4% rule. We are very conservative in this sense.

We could use the 4% rule by selling some of our liquid assets each year while we wait for access to our pensions.

FIRE Trade off 

So we VALUE TIME and decided to forego EARNED income. This is the basic premise of FIRE owning your TIME. It is then up to you how you want to spend it instead of someone else deciding for you.

TIME / LABOUR is given up for INCOME versus FIRE is giving up LABOUR for TIME.

TIME is one of those things money cannot buy. I cannot buy the TIME back with the kids yet FIRE has given us TIME with the kids. As a family we have VALUED this more over SPENDING OUR TIME FOR MONEY / STUFF.

So what is a RICH LIFE?

This is such an interesting question raised by the NETFLIX show Living a rich life. Does consumption / spending versus being a cheapskate impact happiness? Does SPENDING = HAPPINESS. What is a cheapskate? does that = UNHAPPINESS?

There have been numerous studies on what income is required to be comfortable / happy after which point the returns diminish. Say for arguments sake that is a number like 40K. Does this mean if you hit this passive income you can stop?

Does stopping / FIRE take away purpose from you life / lack of meaning = less happiness?

If you have money should you spend it our should you wait for a reason to spend it?

Does spending and accumulating stuff make your life happier or more complicated, cluttered, expensive, what defines good spending? 

These are all very personal questions that are unique to each individual.

After reaching FIRE did we change habits?

So have we changed our habits from the FIRE accumulation stage?

Quick Note: we did not miss out on life during the saving and investing years. We did not go full on save every penny, we just lived below our means and made what we consider smart choices with our spending and holidays... perhaps we sticked to that 40K spending happiness level.....

To be fair we have had to make changes / force change in some way:

1. You cannot foresee what your future life will be and what is thrown in front of you - naturally our goals and habits evolved with our new FIRE lifestyle. Throughout our lives we were accustomed to change and have the natural tendency to embrace change.
   
2. We make sure we allocate free money to happiness activities and spend it. 
3. We have accumulated enough stuff to now repair and replace instead of add. 
4. We now want to make sure we de-clutter / de-accumulate. 
5. We still like to save a bit even though, based on the 4% rule, and our current budget we don't have to << FIRE hangover habit.
6. We still risk plan and keep a large emergency fund another FIRE hangover habit
   

Are we denying ourselves?

1. We can spend more
   
2. We are time sensitive to spending - what I mean by this is we have projects which we WANT to do but will wait until we have the liquid funds available and they do not risk our safety pot.
   
3.  We have responsibilities as parents to raise capable adults so we spend on education instead of nicer holidays.

I can easily justify our lifestyle, I can easily lie to myself, I can easily change the way I see my life philosophy - all unique and there is no right answer. Yes we are denying ourselves in some ways and are fully aware of that fact. Yet.... we have priorities and goals, we fully understand you can never have everything you want and must be grateful for what we do have. You have to align with your goals and life philosophy to be content. If you are not happy you have to do something about it. 

Conclusions and Actions

• It is important to have goals and a vision of what you WANT
  
• It is important to know what your NEEDS are this allows you to differentiate NEEDS vs WANT and vice versa. We do not want basics to turn into luxurious goods where for example:
  
  We overspend on fashion for fashions sake out of WANT. Too big a house for our NEEDS. We NEED to spend on personal development. We WANT a fancy car when we REALLY WANT a nice holiday and no debt.
  
  
• Do not snap purchase, always take your time and have some criteria for a purchase - ask oneself is this a WANT or a NEED. e.g. Do I need the fancy expensive car?
  
• Avoid LIFESTYLE INFLATION - if you are honestly happy (have a discussion with yourself 😃)  with you current lifestyle why inflate it yourself? Keeping up with the NEIGHBORS / PEER GROUP shows a lack of confidence in yourself.
• Always run a budget. Know your incoming and outgoings - allocate a percentage of your income to saving and investing and some to fun. Many fun things are almost free - play time with the family, visiting friends and local trips / being in nature. 
• Be very careful when shopping. Know what you want and stick to your allocated spending budget - it is easy to be lulled into an expensive purchase. Impulse purchases are often a short term dopamine rush providing little long term happiness.
  
• LIVE THE DAY with an EYE ON THE FUTURE - we OWN OUR TIME because we avoided LIFESTYLE INFLATION the insecurities of not fitting in with our peer group.
  
  TIME CANNOT BE RE-PURCHASED
  

 Peace, prosperity and happiness

CoNTeNDeR

Welcome New Readers! Please take a look around.Click here to find out more about THE.TriBe and the blog is or perhaps browse the all posts list, Please feel free to play with the planning tools and checklists. If you liked this post can you please spare a few seconds to share it?