I’m just going to start this off stating this post may rub some people the wrong way. And that’s totally fine. I can’t please everyone. All I can do is speak my mind.
Where Did All Our Money Go?!
Let’s face it. The majority of the developed world has a spending problem. A big one. And with that spending problem comes a lack of savings problem.
According to Forbes, 78% of people live paycheck to paycheck. That is a HUGE percentage! On top of that, Magnify Money conducted a study using data from the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) to estimate the average and median household balances in various types of banking and retirement savings accounts. The results show that the median American household has $11,700 saved up. That’s it.
Wake Up People
While of course I would never wish for coronavirus to have spread to the magnitude it has so far and for the entire globe to have to face these pandemic events/catastrophes, I truly hope that this event serves as the financial wake up call most people need when it comes to having an emergency fund and saving for your future self. Sadly, it likely won’t, but one can hope.
No one wants to talk about money because everyone seems to be spending all their money and then has nothing to show in their bank accounts for all their years spent grinding at their cubicle. I recognize our privilege and I completely understand some people are scraping by on minimum wage or low income jobs. Those are not the people I am speaking to on this post. I truly feel awful for the millions of people filing for unemployment assistance at this time. If we can learn anything from what’s going on in the world, it’s that we all could use a good lesson in personal finance, especially those who are earning middle-upper incomes.
The importance of having an emergency fund, remaining out of debt (or aggressively killing off your debt), understanding needs vs wants, living below your means, and building wealth by investing has never been more apparent in the past 10 years until this month. We were all blissfully chugging along as the stock market continued on its bull run thinking life was good and we were invincible. We were collectively spending our money as if we had no cares in the world. Yet we forgot that the best time to prepare for bad times is during good times. And here we are, being hit with a dose of reality – it’s not always rainbows and unicorns. If you don’t have a savings plan in place, THIS IS YOUR $*&@%$^@ WAKE UP CALL.
For those who are not prepared right now, you likely feel hopeless. You may feel like the world is ending. How can you pay this months rent check or mortgage payment? What is the government doing to help out? How long is it going to take for my stimulus check to come in? Who is going to help me get through this rough time?
Which leads me to a related tangent.
Respect For Taxes
I have always supported getting help when you need it. Whether someone is living in poverty or lost their job due to unforeseen circumstances. It is very interesting, and very frustrating, to see the hypocrisy going on. Even though more and more people increasingly rely on government, they want to pay fewer and fewer taxes.
What do I mean by that?
The tone of many people across the world is that they need help. They lost their jobs, or they need to take care of their children or elderly parents, or they need to self quarantine, etc. and they are banking on this stimulus package to get through these tough times. Yet, many of these same people are also all about anti-government assistance and look down on people who rely on assistance from the government to get by. They are now in that exact category of people that they look down upon and are demanding a stimulus package for higher earners too. Why? Because even though they are high earners, they haven’t learned the concept of saving for a rainy day. They are upset that some people on unemployment will now be earning the same amount as them, possibly even more.
Again, I have NO issue with anyone receiving help at this time. We all need to collectively get through this to see the economy flip back and start moving in the positive direction again. I have an issue with their sudden change of attitude towards government help when they need it. I read this line last week and had to share it: This shows a poverty of a different kind: of values, kindness, compassion, and community. That struck a massive chord with me and it’s so so true.
Of course, I hope they find the resources to get by. I also hope they find a new perspective that regardless of hard work, anyone can find themselves needing a handout or a hand up in life. I hope people realize how important a strong government support system is. I hope people shift their views more left after realizing how important a role our taxes play.
Think about it this way, our taxes are essentially our emergency fund from a country wide perspective. Taxes are a savings plan that are enforced at the federal level. When you look at your government for support, you are looking at them to have a healthy savings account in place to bail you out. In order to prevent inflation from making your currency worthless, the other way to create this healthy support system is through higher taxes. I recently read the book The Nordic Theory of Everything and it turns out to have been a very timely decision to have read it earlier in March.
Guess which countries consistently rank at the top of the happiness reports? Those with very healthy social nets. Aka those paying high taxes. Of course, these countries aren’t perfect, but I truly think there is a lot to learn.
I am not trying to belittle anyone in this situation. If you are one of the 78% living paycheck to paycheck and you have been negatively impacted financially by the global events taking place, I truly do feel bad for you and wish there was something I could do to help. Luckily, many governments across the globe are stepping in to help get their countrymen and women through these tough times. The point I’m trying to make is, if taxes increase down the road (and I sure hope they do), understand the reason why. Higher taxes are NOT a bad thing.
Is This The End Of The FIRE Movement?
Through this blog we are TRYING to show you how to take control over your finances and see money as a tool vs money controlling your life (of course we are not the only ones, there are many great FI bloggers out there).
Many people may be thinking… so this is the end of the FIRE movement eh? There go all those wild dreams of retiring early in your 30s or 40s right?
NOT. AT. ALL.
If anything, this makes those of us pursuing FI so thankful to be in the situation we are in. In times of turmoil, people should be wanting financial freedom more than ever. If anything, I’m hoping that the life changing power of financial independence is going to be brought front and center to millions of people. Personally, the Modern FImily is sleeping well at night.
Why?
We have enough cash in our account to last us 6 years. That’s not a typo – years, not months. We also have enough bonds in our portfolio it live off of for another 5-6 years. That’s over 11 years of ammo until we need to touch our stock portfolio. It is HIGHLY unlikely that once it does come time to touch the stocks in our portfolio, that they will be valued where they are today. Of course we are worried about the state of the global economy and the health of our loved ones, but we are not worried about our finances.
Now, over the course of the next year or so we plan to throw some of this cash/bonds towards our stock index funds to ensure our allocation is where we want it to be over time. Because we shifted from having 90+% of our portfolio invested in stocks during our aggressive wealth accumulation phase and now only having ~60% invested in stocks, we have the opportunity to rebalance at this time and funnel some of the cash and/or bonds into stock index funds and buy stocks when they are on a huge discount (and around here we are all about shopping sales). So far we have deployed about $10,000-$15,000 towards stocks (more on that on our next quarterly net worth update).
I will bet that if you are on your path to FI and lost all or most of your income during this time, you are sleeping much better than someone who also lost all/most of their income and is living paycheck to paycheck. If you’re on team FIRE and you recently lost your job, there’s a very good chance that you have a healthy savings account funded to get you through this downturn. You also have the power to not have to say “yes” to the very first job opportunity that comes your way. Essentially, you are in a position of strength. More importantly, you have the right mindset to help you get through this time. You’re an innovator, an optimizer, an organized spread sheet lover, and are in tune with your spending habits. Those four qualities tend to run common among those of us in the FIRE space. If you need to think creatively to reduce your expenses, you do. If you need to come up with some alternative to bring in some income, you do.
Those of us who have been investing for awhile and are comfortable with the stock market, know that the market will go up. When? Who knows. No one knows that side of the picture. But we know that it will eventually go up and we know not to sell our stock investments during times like these and to stay the course. We are NOT panic selling. We are not trying to time the market. We are not looking to invest in speculative individual stocks. We know not to touch our healthy emergency fund during times like these but if we do have excess income coming in, we invest like we normally do. We have a plan in place, we know our spending habits because we track our expenses to the T, and we don’t make rash decisions with our investments.
“Be fearful when others a greedy, and greedy when others are fearful.” – Warren Buffet
If anything, MORE people should be wanting to learn about personal finance during times like these. More people should want to have a better grasp of where all their hard earned pennies go. More people should want to be looking out for their future self. More people should not want to feel completely tied to their jobs to survive. More people should want to be in control of their finances. More people should no longer want to be blissfully unaware of their finances as you cannot just hope for the best. More people should be wanting to understand what a “savings rate” means. More people should want that freedom to be able to actually sleep at night during times like these. And if they don’t, then that goes back to my point above, and they should want higher taxes so at least the government is looking out for them if they don’t want to take responsibility financially.
Right now it’s never been more apparent that there’s a difference between acting rich and actually being wealthy. Those who flaunt their high incomes and have nothing to show for it are feeling the pain. Those who understand the concepts of saving, investing, and compounding are the ones sleeping well at night. We are the ones embracing times like these. We see the great buying opportunity in the market. We are getting caught up on sleep. Or spending more time as a family. Or going out for long adventure hikes. Or trying out new recipes at home. Or reading books we’ve meant to read for awhile now. And we’re not feeling stressed out while doing so because we have a runway to support us during tough times. That’s the big difference. Those on the FIRE path are getting a taste of what their future life could look like (in a weird set up of course). Pretty much everyone else is in panic mode.
The last point I want to make is that in a very weird-hard-to-describe-way, I’m honestly glad the markets are getting a shake up. The FIRE movement has taken off the past year or two and suddenly everyone wants to join the party. Of course, the more the merry, but it’s easy to “see the light” when times are good. It’s during tough times where you can be challenged. Life can be bumpy, even in the best of times, so to only plan for the perfect scenario is foolish, at best. Is the pursuit of FIRE right for you?
Maybe you are realizing early on that you are not comfortable with your asset allocation and need to adjust according to your risk tolerance. Maybe you now see why we are more comfortable with a sub 3% safe withdrawal rate vs the highly touted 4% rule within the FIRE community. Maybe you now see why we shifted a lot of our stock index funds over to cash (in a high interest savings account) and bonds as we approach our FIRE date. Maybe you now see that a specific age to retire is not the true end goal but rather it’s being mentally comfortable when you do decide to pull the plug. Maybe you now understand the importance of flexibility and creating a life you want to live post-FIRE while you’re still bringing in an income in case you need to push things out a bit longer.
This last sentence has been our biggest take-away from the past year and what we are trying to communicate on our blog – the transition to work part time as been the best thing for us as I already feel retired yet we’re still saving 50% of my part time income. Make sure you are enjoying the journey along the way.
I’m not trying to be a Debbie Downer with this post. I’m just trying to provide a clear picture of what you need to be thinking about while on your FI journey. It’s not always going to be good times and you have to have a plan in place for situations like these that make make you alter some of your previous thoughts or assumptions. It shouldn’t be only about a specific number or a specific age. It should be about designing a happy life along the way.
Stay the course. An investment plan established during a calmer time should not be abandoned in the midst of a market downturn. Let the benefits of diversification play out.
I’m hoping people are more conservative with their spending habits once COVID-19 has finished running its path. I’m hoping the thrifty habits we are nurturing during these difficult times will stay with us. I’m hoping people will take debt more seriously and invest in their priorities more mindfully. I’m hoping emergency funds will become more prevalent and healthier in size. I’m hoping consumer debt is no longer the norm. I’m truly hoping that people will lean onto the power that comes with financial freedom. And as we survive this storm as a global society, I’m hoping we will come out to the other side with more clarity, poise, and vision of what truly matters in life more than ever. In a rush to return to normal, use this time to consider which parts of normal are worth rushing back to. The little things are the big things.
What do you think? Did I totally turn you off with this post? Or were you able to relate to my thoughts? Would love to hear your thoughts below in the comments.
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It’s interesting, isn’t it? I don’t think we can idolize any one system or way of doing things. I visited some schools in Finland and the teachers said they had a huge problem getting and retaining educators- because unemployment reimbursement was higher than teacher salaries. They also mentioned that there is such a strong social safety net that many of their students don’t aspire for college or entrepreneurship. It was an interesting perspective after reading so many articles about how great the education was in Finland.
I think personal financial responsibility is exactly the kind of “pull yourself up by your bootstraps” type of lesson that Americans and others need to hear, however. We’ve lost that in the U.S. and hopefully this is a wake-up call.
Thanks for tuning in 🙂 No system is perfect, that’s for sure, but I really do think we could learn a thing or two from the Scandinavian countries. I’m TRULY hoping more and lore money talks are happening around the globe and we slowly become more comfortable speaking with loved ones about our financial set up to make money less taboo of a topic.
Content is bang on, and a powerful message so it will likely rub wrong a slug of your audience — though with respect to the measures implied post-crisis, the message is about an order of magnitude too tame. The resilience required to effect even notionally the end state you desire must be founded in a cultural rebirth, one not likely to emerge from a crisis that is resolved within one generation.
Sadly, that’s likely the case re losing some of our audience and the timing for these goals to happen. People will likely feel pent up and cooped and the spending spree will continue on.
I don’t feel that this post is negative at all. I too hope that it is a wake up call for all of those living paycheque to paycheque. While there are certainly people who don’t have a choice, many people are spending money they don’t have on things they don’t need. Unfortunately I think that once this is all over that people will jump right back in to old habits. I’m taking this opportunity to put any extra money I can in to the stock market.
Woohoo glad to hear you’re paying your future self during this time 🙂 And glad you didn’t view this as a negative post. I too agree that unfortunately people will likely go back to their previous habits – it’s hard to teach an old dog new tricks….
Great post and as usual enjoy your perspective. From our chats you know I lean more towards social support programs from government and adequate taxation for them. Reading all the Scandinavian books on how their societies are structured and live recently cements this believe for me.
Thanks Chris – I knew you’d be supporting my thoughts regarding taxes and social support programs 🙂 I’m hoping we all spend this new found time trying to figure out what a happy life actually looks like.
All important points you’re making here, and I appreciate this discussion. We’ve been having similar conversations in our household daily. In no way do I think the FIRE movement is dead. Rather, I think the social distancing and quarantines are a perfect opportunity for our communities to practice FI-oriented mindful spending. Of course, I have co-workers and friends that are “retail therapy” shopping on Amazon, and throwing any cash flow they have at ordering take-out from high end restaurants that never before used to deliver. But I would say that through our quarantines most people are learning the limited value of “stuff” when it comes to our overall happiness. Many people are coming to see just how happy and wonderful life can be simply by having a home, and health, and family. And that’s a wonderful start to becoming more financially responsible, isn’t it?
This crisis is tragic and I wouldn’t wish a single bit of it on anyone. But, as we can’t change our situation, the best we can do is change our attitudes and seek the positives that we can take away from it all.
Stay healthy <3
Elise
Thanks Elise, appreciate this comment 🥰 Sadly it seems like some people still aren’t getting it, like you mention regarding retail therapy or over indulging in fancy meals. But yes, the little things like shelter, food, health, and community are what REALLY matter in life and are being highlighted during these times. We’ve had more FaceTime calls with friends and family in the past few weeks than we likely did all last year combined. Let’s all try to stay positive 💪
I agree with everything you’ve written here, Court—especially the part about the FIRE movement. Of course it’s not dead, nor will this virus kill it.
As you stated, this situation just makes it even clearer how important it is for everyone to at least embrace the tenets of FI. Like you, I’m SO glad we’re where we’re at right now… and it’s due to making FI choices everyday, year after year, decade after decade.
I genuinely hope more people will make changes for the better after this crisis is over. I hope it proves how important it is for everyone to get smarter and more intentional with their money.
Thanks Chrissy 🥰 I’m really hoping there is more light on the positives of the FIRE movement during these times of turmoil. Hoping that this pandemic serves as the wake up call that people may have slept through during the 08 financial crisis.
A really great article, thank you so much for posting. This is a conversation my husband and I have been having quite a bit lately (lots of interesting chats happen when you’re stuck inside together!) and it’s great to read about other perspectives. Before coronavirus I am convinced we were still headed towards a crash, but now we have the additional challenge of being limited on where we can go and what we can buy. Personally I actually find this quite freeing – whereas before I would stop in at Starbucks regularly, or go to the mall when I was bored, now I am forced to get creative (or stop being so lazy) and figure out ways to feed, water, and entertain myself without being able to buy my way into it.
That being said, we have been big proponents of FIRE for a couple of years and have a hearty pile of savings to see us through, plus are both securely employed, plus are in Canada and do not need to worry about medical costs. That peace of mind has helped greatly, and has only reinforced that we are on the right track for what we choose to do with our finances.
I truly feel for those who are financially stressed right now, but it’s a hard lesson some people learned in 2008 that was then forgotten. We desperately needed another hard lesson, not just on how we spend our money, but on how we treat other people and our environment. Moving forward I hope we can treat people with more compassion and respect, and see that the way we were living before was trashing the planet.
Again, great article, thank you for posting 🙂
Thank you Caitlin for this wonderfully thought out comment. There’s so much I could respond back to here haha. I love your point about we all just need to stop being lazy and instead we need to be more creative – exactly! And yes, it’s definitely a pro to be in Canada during these times where healthcare costs are not something we have to worry about. I too hope people will act more kindly and more respectfully towards others and the planet. ☺️
Great post!!!!! I’m with you – especially about the need for a solid social safety net and a progressive system of taxation to support it. Though we need to be better an implementing higher rates of income tax for the top 5% income earners, and corporate as well. We’re lucky here in Canada that healthcare isn’t tied to employment!
Hope you’re doing well.
My best,
frugal phil
Heyyy!! So good to hear from you. Hopefully we continue to shift towards a more progressive system! Agreed re income rates – it’s funny as Americans would look at the Canada system and think it’s too high vs Scandinavian’s would think it’s too low. VERY lucky that healthcare isn’t tied to employment, it’s going to be very interesting times seeing any sort of policy changes that pan out from this. Hope all is well friend, miss you! 🥰
The lessons here really chimed with me. I am fortunate that I am employed by the government and so will continue to be paid my full salary. The thing is, even if this wasn’t the case I would survive. I have been overpaying our mortgage for a few years now and could have a mortgage holiday for six years if necessary. I also have plenty of savings. My partner, who works for himself, is not so fortunate as his work may dry up, but he has money in his business to pay himself for a few months and then savings which he could live on for years. When talking to friends and colleagues I keep saying that I am lucky and this is partly true, but it is also true that I have worked hard to get to a financial stable situation and have gone without in order to do so. Other people haven’t made those sensible choices and unfortunately they are now looking to the government to bail them out. It always amazes me that the general population don’t like to be told what to do by ‘the nanny state’ (not sure if this is just a British phrase or not), but when the sh*t hits the fan they go running to ‘nanny’ to look after them. Many thanks for the post, Sam
Hey Sam thanks for this note, I’ve seen you in the EFIC space so I’m happy to see you over here too 😊 Totally agree that this has taken hard work and a lot of planning to get where we are today. MANY people do not think about paying themselves first and take the steps to actually have a healthy savings account in place. I’ve heard of the nanny state by reading some European books – it’s not a common saying in North America but I knew what you meant!
I really enjoyed this post. There is definitely a balance to be struck between feeling for those being affected and recognising that many people need to make better financial choices. I think you’ve achieved this balance wonderfully and you’ve got some great advice and reminders in there!
Thank you for this note 🥰 We were trying hard to recognize how sensitive of a topic this is and how many people’s “normal” have been completely uprooted due to something totally out of their control and we didn’t want to dismiss that. Truly hoping we all come out of this recognizing what it is that’s really important to us – our health, our family, our friends, our compassion, our purpose.
Great blog.
Regarding taxation and wishing for a greater implementation of progressive tax. Just be careful of what you wish for and the ability to FIRE. You have nothing to worry about as taxation will be increasing a lot.
Perhaps a wealth tax? It’s not unheard of with those with over a $million. Several political parties on the left such a NDP and Bernie Saunders are proposing such a thing.
GST and consumption tax for sure will increase. Capital gains and dividend taxes on stocks will increase.
Increase Corporation taxes? Well corporations don’t care, they’ll just pass the extra taxes onto the consumer by increasing the prices of items.
Capital gains on Selling a house will likely not be tax free anymore. Add to that all those carbon taxes.
So the future will be a struggle to FIRE as the value of stocks, housing and savings accounts will also take a hit. Keep your job and don’t FIRE!
Thank you and good points. Honestly, I wish a wealth tax is created and implemented. If that means it takes those of us on the FIRE path longer to reach our FIRE number, so be it. It’s ridiculous how few taxes those with wealth have to pay. It’s insane to me that we could retire and pay no taxes when looking at our annual spend and not taking into account our net worth. Unfortunately, politicians are typically those with a lot of wealth and influenced by those with money/power which is why these rules have never come to fruition yet (and why so many tax loopholes are in place) because they are looking out for themselves. As more and more people shift left I think/hope we will get there (as that is what more and more people from the younger demographics are voting for on a general level – ourselves included) – but time will tell. I am a big fan of the NDP and Bernie Sanders as they are looking out for future generations not short sighted gains. And bring on the carbon taxes, we must put our planet at the forefront – it is this century’s responsibility to do the right thing and time is ticking fast. Luckily, we have set up a VERY happy life for ourselves being able to live on 50% of one part time income and investing the remaining 50%. If it means we continue this lifestyle we created for an extended period of time, so be it. Life is good 🙂
I am optimistic that things will be better in the long run. People need to change how they spend money. As humans we also need to change how we see the Earth and how we protect the environment. Open your eyes people!
Fingers crossed! Here’s hoping to people being more aware of their finances and environmental impact.
Ah you speak my mind woman! Haha. Loved this post, finally got to sit down and read it. Now I see what you mean when we were chatting earlier – great minds. We just feel so ‘ready’ for this situation. We’ve been enjoying the downtime together and still feeling like we’re living in ‘holiday mode’ which is our normal ;).
Agree with you and Adventures With Poopsie – while it’s a horrible time for some – hopefully they’re learning from their past choices and making new ones going forward so they don’t end up there again!
Thanks friend! Yea I could have regurgitated the whole message on our chat haha. Of course I feel horrible for so many people struggling both from a financial standpoint and a health standpoint and that can’t go missed. But I do hope that we all get a bit of a shake up and reassess our spending and saving!
We retired very recently, and almost immediately hit the pandemic, the lockdown (currently week 5 here), and the dreaded sequence of return risk. Great start!🤨
It sucks, of course. But looking at the bright side, we’ve learned a lot from it especially as we are at the beginning of our early retirement. We now understand ‘for real’ how important it is to be flexible and not overstretched financially.
Having said that, not for a single minute we have thought “we shouldn’t have retired”.
Gah great start indeed! But like you said, you’re learning lots from the get go which is a blessing in disguise and also understanding how to be flexible from the get go. Are you guys using a 4% safe withdrawal rate?
To help further ease any of your worries, have you listened to this podcast episode with Michael Kiches yet? It’s definitely worth a listen and he’s someone I highly respect!
https://www.biggerpockets.com/blog/biggerpockets-money-podcast-120early-retirementasset-allocation-safe-withdrawal-rates-michael-kitces
Cheers, will have a listen. As for withdrawal rate, we want to stay well below 4%, ideally below 3%. It’s a ‘medium term target’ though, as we moved internationally after retiring, and we are still adjusting to new prices, lifestyle, etc.
I can confirm thought that during lockdown we’ve spent way less than usual 😅
Love the thought of wanting to be below 4%, we too are striving to be below 3%. With that teamed up with flexibility and forced lower spending during these times, you’ll be fine!!
Thank you for a GREAT article. Reflected exactly what I have been thinking. I think a system that collects taxes to use for the well being of all creates a kinder, more caring culture. I know it’s not perfect. And I too hope this is a wake up call for our over spendy society.
Thanks so much for all your wonderful content. Keep it coming!
Thank you Kim – totally agree. We shall see over time if a higher taxed system creates a kinder and more caring culture – I hope so!