Camp FIRE Finance

For those seeking FIRE, by those seeking FIRE

Debt Elimination

Debt Elimination

ELIMINATE AND AVOID DEBT

One of the most important things you can do in your journey to reach financial independence is to eliminate and avoid debt.

ELIMINATE DEBT

If you're like nearly every other American (and Canadian), then you're in debt - and that means that a portion of every single dollar you earn belongs to someone else. The more debt you have, the more your money belongs to someone else.

So you go to work to earn money to pay back your debts - it's a vicious cycle and you end up getting worked to death.

Forget that! Pick a debt elimination strategy, even if it's a different kind of plan, and eliminate your debt ASAP.

AVOID DEBT

Once you've eliminated your debt you should avoid debt like the plague. Debt is the great killer of wealth. Think for just one second how great life would be if you could just keep the money you make?!

Cash would start to pile up faster than you realize! In fact, when you get to keep the money you make it's possible to thrive on a single income (even if you're in an expensive city).

In your quest to reach FIRE it is vital that you eliminate and avoid debt! So click through some of the posts and articles below to find more useful information that can help you eliminate and avoid debt!

How to Calculate Retirement Costs for Anything

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How to calculate retirement costs

Not long ago I was looking over my expenses when I had a financial epiphany of sorts.  It was about the true retirement costs of my spending habits.

I recently wrote a post about how I’m going broke from eating out.  In that post I tried to quantify just how expensive my +$6,000 per year dining out habit really is, and this is what I came up with:  not only do I spend over $6,000 per year eating out, but maintaining that habit in retirement means that I need to boost retirement accounts by $150,000.

How to Calculate Retirement Costs for Anything

I don’t know how long you would need to work just to save $150,000, but saving that kind of dough would take me multiple years.  I don’t enjoy eating out so much that I’m willing to add a few additional YEARS to my working career just so that I can keep spending $6,000 per year in mediocre restaurants.

That is the dark side of the Personal Finance Multiplier Effect in action.

Running the Numbers

Figuring out how $6,000 per year requires $150,000 in investments savings is pretty simple.  There are two easy ways to calculate the true cost of something:

  1. Annual expense divided by .04
    • In my case I spend about six grand per year eating out, so that would be $6,000 / .04 = $150,0000.   Or,
  2. Annual expense multiplied by 25
    • Again, using my restaurant bill as the example, $6,000 x 25 = $150,000.

Using the Rule of 25 and the 4% Rule, this cheat sheet will help you figure out exactly how much money you’ll need to have saved and invested for your retirement:

How To Calculate Retirement Costs

It’s Mathemagical

Some of you might recognize that I’m using math from the 4% rule to come up with these numbers.

For those of you not familiar, the 4% rule is a way of estimating how much money you’ll need to save and invest for retirement so that you can maintain your lifestyle without running out of money.  To calculate that number, simply take your total annual expenses (housing, transportation, fast food, cable, cell phone, clothing, entertainment, etc.) and multiply that number by 25.

The number you get is how much you’ll need to save and invest.  In a nutshell, here’s how it works:   The stock market grows at an average rate of 7% per year while inflation grows at an average rate of 3% per year.

From that 7% investment growth you’ll be able to withdraw 4% to meet your annual expenses and leave 3% behind to keep up with inflation, meaning your nest egg should remain healthy throughout your retirement.  Take a look at this example:

How To Calculate Retirement Costs

Retirement Cost Examples

Based on math from the 4% Rule, also known as the Safe Withdrawal Rate, you will need to have $100,000 invested to support any habit or hobby that costs you $4,000 per year (or $333 per month, or $11 per day).

Here are some typical expenses people have that will significantly increase the amount of money they’ll need need to have saved for retirement.

How To Calculate Retirement Costs

Save More or Spend Less

These are some pretty general examples, but you can see that if you’ve got a hobby or expense that costs you $300 per month, then you’ll need to have $90,000 in your retirement account just to support that one single hobby.

When it comes to saving for retirement, there are two levers that you you can pull:

  1. Earn more money
  2. Cut expenses

The less you need to get by, the less you need to save up to retire.

Think Differently

I can here the boo birds already: “I’m not going cut all of my expenses only to live a life of boredom and/or destitution!”  My reply: Good for your – neither am I.

My goal for this post is to help you frame up future purchases a little bit differently so that you can be aware of the true costs of an item or service.  Even small purchases can quickly add up, requiring you to add years to your working career just so you can support your lifestyle of choice.

Or, You can retire earlier than you think.  You just need to start thinking differently.

how to calculate retirement costs

Run The Numbers

Before making your next purchase, or signing for that next loan, or joining that next subscription service take 10 seconds to figure out how much this new item will cost you per year, multiply that number by 25, and ask yourself if you’re willing to save that much money just to support whatever it is you’re buying.

And on the flip side, take a look at your expenses.  Don’t be like me and assume you know how much you’re spending.  Take 5 minutes to sign up for a free Personal Capital account today so that you can begin to track every penny you spend, cut unnecessary expenses from your budget, and cut unnecessary working years from your life.

Every $350 per month that you can eliminate from your budget reduces your ‘magic retirement number’ by $100,000.

How long will it take you to save $100,000?

How long would it take you to cut $350 from your budget?

Chime in!

Were you already aware of the true cost of some of your hobbies and habits? Was this a surprise to you?

Six Ways to Stay Patient and Motivated While Paying Down Debt

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Debt Sucks
This Camp FIRE Contributor article was written by Good Nelly

Debt Sucks

Paying down debt is one of the major criteria to reach financial independence. You can’t repay your entire debt overnight. You have to be patient. There will be times when your progress will be slow and you’ll have to stay motivated until you’ve repaid that last cent.

Debt sucks. Here are six ways you can stay patient and motivated while paying down debt.

Get Annoyed With Paying Interest

It is easy to make the minimum payments and continue doing it for 5 or 10 years. Next time you do so, have a look at your bill. Take note of how much you’re paying for the interest.  You’ll be shocked at the amount.

The faster you can repay your debts, the less you’ll pay in interest.  So don’t give up!  Saving money by paying off your debt fast is a good way to remain motivated as you pay off debt.

Remind Yourself of Your Goal Every Morning

Staying focused will help you maintain patience. Make it your primary focus to overcome debt problems.

Every day ask yourself and imagine “How my life will be after I repay the debt?”

By paying down debt, you’ll move one step forward to achieve financial independence.

Include Other Challenges Too

I don’t agree with the fact that you have to focus only on paying down debt, as you may lose patience.

My friend, Lisa, overcame this by focusing on de-cluttering her household along with reducing her debt amount.

Look for ways to enjoy life while paying off debt! For example, try focusing on eating healthy foods. You will see that by eating healthy food prepared at home, you’ll also save money.

To realize the joy of paying down debt, incorporate other challenges and improve your life from every aspect.

Check Your Progress Every Week

Create a vision board and write down your goals. Keep them right in front of your eyes and assess every weekend how far you’ve come in achieving your goals.

Every day, look at your goals and remind yourself about your target. You’ll see that you can achieve them much faster.

People who write down debt repayment goals are much more likely to be successful in paying them back.

If your goal is to repay a total of $50,000 in 3 years, then you’d have to repay $16,666 annually, and $1,388 every month. Every week, you need to apply $347 towards your debt.

That could become difficult, so remain patient and focus on your goals and track your progress.  If you do so, you’ll remain on the right track.

Try Out The Debt Snowball Method to Repay Bills

If you’re worried about how to stick to paying off debt, you can try out debt snowball method.  Here’s how to do it.

  • Start by listing your debts from the lowest outstanding balance to the highest one.
  • Focus your efforts on the debt with the smallest payoff balance and and pay a little extra on it as often as you can.
  • Make only minimum payments on all of your other debts.
  • Once you pay off at debt, apply all of your newly freed up money to the next smallest balance.
  • Keep doing this until all of your debts have been paid off.

The debt snowball method helps you stay motivated because once you repay a debt, the amount of money you now have available to pay on the next debt gets bigger.  This allows you to pay the next debt off faster.

You don’t have to struggle to remain patient since you’ll see your debts getting wiped out one by one!

Give Yourself a Treat

You deserve a treat when you achieve a goal, however small it might be. Do not wait for the end result to reward yourself.

When you celebrate your success, it gives you the motivation to repay the last debt account.

When you’re able to repay 50% of your debt amount, do a thing which you like. Make sure not to splurge too much. For example, plan on eating out, but set an amount beyond which you won’t spend. The idea is to cheat your budget and splurge a little!

Do not take this opportunity to plan a lavish vacation or buy a car and put yourself more into debt.

If at any point in time, you feel that your debt is unmanageable and you’re losing patience, you can enroll for debt counseling in Debt Consolidation Care or in any other non-profit organizations.

The counselors can guide you and offer solutions to combat debt problems and manage your financial life in a better way.

Celebrate your journey towards paying off debt and taking a step forward to becoming financially independent. You deserve an applause!

LIFESTYLE DEFLATION IS ONE SOLUTION FOR BETTER FINANCES AND A HAPPIER LIFE

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Lifestyle Deflation is like minimalism in that you get rid of the unnecessary and unwanted stuff in your life

A recent financial study found that 74% of Americans felt ‘at least okay’ about their finances. That’s not too bad!  But this is the exact same study that also found nearly half of all American’s couldn’t afford to cover a $400 emergency.

How can the majority of people in the US feel good about their finances, but nearly half couldn’t cover an unexpected $400 expense?

It’s because many of these people are living paycheck to paycheck.  As long as they keep getting paid these folks can afford a big house and a nice car and fancy vacations, but they can’t afford anything else.  They certainly can’t afford to build an emergency fund or save for retirement (that’s also according to the study; not my opinion).

Something’s gotta give.

Lifestyle Inflation is the Root of Many Financial Problems

Over the course of a life and career, its easy for a lifestyle to become bloated.  It happens without even realizing it.  As your income grows, wants that were previously out of reach are suddenly within your grasp.  So we upgrade our cars, clothes, eating habits, entertainment choices, vacations, homes, and everything else as well.  Nothing is safe from lifestyle creep.

Before you know it you’re making more money than you’ve ever made in your life, but you can’t seem to make any real financial progress.

This is lifestyle inflation and it’s the root of many financial problems.

Lifestyle Deflation is the Answer to Your Financial Problems

At some point those suffering from lifestyle inflation begin to realize what is going on, but by that time the damage may have already been done. That’s because once we become accustomed to a certain luxury, suddenly that luxury is something that you can’t live without.

The way out of this mess, they think, is to make more money.  That could work if you keep everything else in check, but there’s another way to fix your financial problems, and the results can be immediate.

Lifestyle Deflation

Lifestyle Deflation is the process of removing the unnecessary and/or unwanted items from your life.  According to The Minimalists, some of those benefits include:

  • Improved health
  • Better relationships
  • More creativity
  • Sense of fulfillment
  • Stronger finances

Examples of Lifestyle Deflation

Allow me to introduce you to six people that have seriously improved their lives, finances and overall happiness just by deflating their lifestyles.

1. California Dreamin’

Scott Rieckens and his wife Taylor were living the American Dream.  They had a great life in Southern California complete with a home on the beach, BMW’s, travel, fine dining…they’d made it!

But after the birth of their first child, their perspective changed and so did their definition of the good life.  The luxury lifestyle they were living was dependent on two incomes, but Taylor wanted to be a full time mom more than she wanted fancy sushi dinners or living near the beach. Something had to give.

So, they deflated their lifestyle. Slashing their expenses by 70%, and redesigning their life in such a way that they were able to get by on a single income.  You can listen to Scott tell his story right here.

The Rieckens were so consumed by the inspiring FIRE movement that Scott is currently producing Playing with FIRE, “a documentary that uncovers the growing community of frugalists.”

2. The Airstream Dream

lifestyle deflation by Think Save RetireSteve and Courtney Adcock sold their big home with the nice pool in Arizona, along with their motorcycles and sports cars.  They could afford to pay for these luxuries, but not much else. So they deflated their lifestyle by selling their home, toys, and cars and moving into a 30 foot Airstream trailer.

Now home is wherever they park it.  With such a dramatic decrease in expenses, the Adcocks were able to save a huge percentage of their income.  And because their expenses were so low, they were able to parlay that big savings rate into financial independence and early retirement.

These days they spend their lives traveling the United States at whatever pace they want, working on hobbies and side projects.  I don’t know about you, but to me that sounds a heck of a lot better than grinding out a 9 to 5 just to finance some fancy toys.

3. The Urban Nomad

Lifestyle deflation by Geoffrey WestlockGeoffrey Westlock was drowning in debt. He was able to make all of his payments but he wasn’t getting ahead financially. So, he seriously deflated his lifestyle in order to fix the situation he’d created for himself.

Geoffry sold his home and moved into his trailer.  Cutting his expenses allowed him to eliminated $85,000 in debt and achieve financial freedom.

Even now that Geoffry is debt free, he’s maintaining his deflated lifestyle so that he can continue to make financial progress.  You can watch his story here and follow his story via his website, The Urban Nomads.

4. A Two Cup House

Lifestyle Deflation by Two Cup HouseClaudia and Garrett Pennington are a couple of Millennials than were able to pay off $240,000 in two years by deflating their lifestyle.

They sold their traditional house and moved into a tiny home, minimized expenses and maximized their savings. Today they are closer than ever to becoming financially independent because of those decisions.

You can read about their story, watch a video about how they did all of this on their blog, Two Cup House, and follow along as they pursue their passions and build side hustles.

5. The Groovies

Lifestyle Deflation by Freedom is GroovyLifestyle Deflation isn’t limited to just “getting rid of stuff.”  It can also mean leaving a high cost of living area.  Mr. & Mrs. Groovy did just they when they left Long Island, NY for the pocketbook friendly confines of North Carolina.

Turns out that Geoarbitrage is a great way to reinvent yourself!

This move to North Carolina allowed them to go from being financially dependent to financially independent in three short years.  Selling their mortgaged home in NY meant they had enough cash to by a North Carolina home outright.  From there it was just a matter of padding their accounts before enjoying a life of early retirement.

6. A Man. A Van. A Dog and a Blog

Lifestyle Deflation by Man Van Dog BlogLifestyle deflation is also for the rich and famous. Well, relatively famous anyway.  Joe Hawley played in the NFL for 8 years but after ‘longing for something more’ he gave away most of his possessions to charity and took off for a life on the road.

While Joe didn’t deflate his lifestyle for monetary reasons, he’s still a great example of how a deflated lifestyle can lead to a more fulfilling life.  You can read more about A Joe and his amazing story on his website, Man Van Dog Blog.

These are just six examples of people that traded inflation for deflation.  These people are married. Single. Range in age from 30-somethings to 50-somethings.  Some of these examples might be too extreme for you right now but hopefully they at least show you that there is another way to live a rich and fulfilling life.

And yes, I realize that none of the people in these examples have kids but don’t let that minor detail get to you.  It’s still possible to deflate your lifestyle even if you have kids.  I’m an example of that. My wife and I have four kids and we’re thriving on a single income, partly because we’ve made the conscious decision to deflate our lifestyle.

How To Deflate Your Lifestyle

A main objective for many people that simplify their lives is to minimize expenses and maximize savings.  There isn’t a faster way than lifestyle deflation to get your financial life in order if you’re already making a decent living but struggling to get ahead.

Lifestyle Deflation is the key to a happier life financial success

Track Your Expenses – Do It Old School Style If You Have To

Start by going over your expenses very carefully.  Go old school if you have to; each day write down all of your expenses on a sheet of paper.  Going through this exercise forces your to account for your money.  If you’re not already tracking your expenses I guarantee that you are overspending on something that you don’t realize.

If you don’t want to go old school, then let technology be your friend.  I use Personal Capital to monitor my expenses.  This free app connects to your financial accounts and then categorizes your spending.  I was SHOCKED to learn that I was spending an AVERAGE of $800 per month eating out at restaurants.  $800!?!?

Had I not tracked my expenses I would have continued to live with this out of control behavior.  But now that I’m aware of this, I can attack the problem and fix it.

TIP: Download Personal Capital for free and within a matter of minutes, years worth of your spending habits can be analyzed.  Just look for categories where your spending is unusually high and focus there.

Minimize Your Expenses

After you’ve looked for ways to improve your spending look for areas where you can make permanent cuts.  Recurring monthly payments are your target. Things like car payments, loans on toys (like boats), or monthly subscriptions.  Anything in your budget that gets deducted automatically should be scrutinized and questioned.

  • Do you really need a new or new’ish car? Can you downgrade to a cheaper, older vehicle that you can afford to pay cash for?
  • If you’ve got two cars, can you go down to a single vehicle temporarily while you turn your finances around?
  • Are you paying paying for cable or satellite TV and Netflix, Amazon Prime and Hulu.  Then something can probably be cut without you suffering at all.

If you want more ideas then check out this list of unusual ways to save money.

Trim The Fat

Odds are that you’ve surrounded yourself with stuff.  And the dirty little secret about your stuff is that it’s garbage – all of it!  De-clutter your home (and your mind) by separating yourself from all of this trash.

Most of your stuff has been accumulated gradually over the years without you even realizing it.  Do you really need it? Consider selling it.

Selling will not only let you minimize your lifestyle, but you can also generate some extra cash to pay off existing debts or invest.  Receiving multiple benefits from a single action like this is the Personal Finance Multiplier Effect in action.  Take advantage of it!

Live a BS Free Life

You don’t have to sell your home and move into an Airstream, live in a tiny home, or even move to another state, but you do need to cut the fat from your life if you want to make rapid financial progress.

You can begin to deflate your lifestyle by pausing for just a moment and taking inventory of your life.  Ask yourself where you truly find happiness and what is just noise.

Then begin to relentlessly eliminate the BS from your life and eventually you’ll have a life that’s free of BS.

Chime in!

Is your current lifestyle inflated?  If you’ve deflated your lifestyle, how did you do it?