Okey, I promised you (and myself) that this blog would not be about how to reach FIRE and all the nitty gritty financial details and research behind SWR´s (Safe Withdrawal Rates), investments, ETFs, bonds, etc. (We will talk about local budgets though. A lot!) There are thousands of FIRE blogs out there, all with great tips on how to reach FIRE. That said – I’ve got quite a large number of requests for at least some details on our specific financial setup and history. So, this is my effort to still at least some of that curiosity so we can move on to the daily life joys and challenges of FIRE-life on this little island.
Whats a FIRE (Financial Independence Retire Early)?
Its basically about saving as much money as you can every month and invest it in passive income sources such as funds, stocks, real estate, loans, etc (its not half as complicated as it sounds). In the same time you trim your budget by identifying small life hacks that minimises your expenses. The lower expenses you have over a month the more you save and the less you have to save too. When you have reached a certain amount of stash, usually calculated as 25 times your yearly expenses (the famous 4%-rule) you can “retire” and live on your passive income.
When your monthly passive income is larger than your monthly expenses you have reached FI (Financial Independence) and can RE (Retire Early).
Why we set that FIRE?
I belong to, what I believe to be the majority of people in the FI(RE) movement, a group that does not truly believe in the RE part of FIRE. I believe in freedom to choose how I distribute the time i have. For me that usually means prioritising time with my family, exercising or doing fun stuff. In “fun stuff” I include “work”, as long as it is on my terms and when it fits the rest of our priorities. It does not really matter if if you sit on the beach writing guitar songs, selling houses, baking a cake or making T-shirts. The important thing here is that you do what makes you feel is worth your time. This is how we want to live our life no matter if it is up in the dark cold north or in sunny mañana Spain.
Hands on the heart, to spend time on the things we love is what we all want. FI(RE) is one way to make such a life possible. It’s not the only way and it’s certainly not a guarantee by itself. Its an enabler.
I will during my time here on Mallorca try to spend more quality time with the family, take care of my health, exercise, do lots of activities and meeting new interesting people. (Interesting people for me is basically everyone so that’s easy. All people tend to have a life story usually full of learnings.) Finally some part time work because I like what i do. But without FI, I would not have been able to prioritise my time like this!
So what is important for you, like really? Have you ever taken the time to sit down and actually pond on it for a while? If you haven’t, now is as good time as it ever will be. Its important, its your life and you only get one shot at it!
How did we build that FIRE?
Over time like the majority of us “normal” people. We have always chosen a somewhat frugal life (a.k.a. cheap bastards) and I has been interested in the stock market since graduating from school. When our careers started evolving, and with that the salary increased, we did not adapt our lifestyle too it. Other people in the vicinity started buying expensive cars, fancy houses, an extra vacation home, new electronics once a year and so on. (Both our car and TV are more than 10 years old.) Our money went instead to investments and savings (should have had even more in investments looking back). Also the real estate market in Sweden has increased quite a lot, so that helped as well.
Stumbled onto FIRE
That was our way of life. We weren’t really saving for anything special we just chose that lifestyle because that was who we were. When we discovered the FIRE-movement about two years ago, we finally could place what we have been doing in a context that made sense. We had been working for FI! We could now save and invest even more by increasing that frugality life a little more. After two years we realised that we actually didn’t need more. The calculated growth from our investments matched our budget. The tight marginals did not matter as we knew that we want to work at least a little for the oversee-able future. But even a tiny income means a world of difference as all geeky Moustachians know!
An important thing that also helped to take that leap of faith and moving abroad was the fact that our budget was adapted for our life in Sweden. Why is that important? Well, Spain has about 30% lower costs overall.
We have, as most people do, a quite complex setup. I´ll try to simplify it to some extent without loosing key points. We won’t include numbers for integrity reasons, but I’m sure there are some smart Moustachians out there who can do some reverse maths to get approximations if interested enough. From a high level overview we have our main assets spread like this.
We are including our private pensions (after tax) in our total wealth as we believe the government most likely won’t be able to touch those. We are excluding the general retirement pension though as we don’t trust the government will actually pay us those when that time comes. At least not the amount they are promising us now.
To meet our own FIRE margins we will at some point need to move a smaller amount of the assets in the house to the investment part. This shouldn’t be a problem as the houses on Mallorca might be expensive from a Spanish point of view, but (usually) not as expensive as in Swedens largest cities.
We only include investments and private pension when calculating for FIRE though and not the stash in the house. We know that some people include the money (and some even loans) in the house as part of their FIRE-calculations, but we don’t trust that the price markup will continue and even if did we still need somewhere to live. Investing into real estate for renting out would of course be a completely different thing.
The private pension is pretty straight forward – 100% index funds with weighted coverage of the world stock markets. Why? Well, we will not be able to touch those for a long time and can therefore live with the ups and downs of the market. As all FIRE people know, an all in index approach will give you the best growth over time(!). If you can keep your hands off it during the bear markets that is.
When digging deeper into the more interesting investments, it looks like this:
Yup, that’s a slightly modified and more aggressive version of the Golden Butterfly i wrote about a couple of weeks ago. It’s not fully as aggressive as it might look though. Some of these stocks are for instance preferred stocks and other low risk products (switched for short term bonds). I am a big fan of the Golden Butterfly. Both for the low volatility but mostly because of the 5,6% SWR(!!!) for a sustained portfolio. That is what we use when calculating our FI-budget.
Do we make our budget? Yes, we actually spend way less for many different reasons which I will evolve on an upcoming post! Stay tuned by signing up or RSS-feed on the right!
So there you have it – a top view on our financial history, life goals, investment allocation and financial strategy. Questions on that? Whats your strategy?