Setting Your Pace
On Wednesdays, we run “the mile.”
At the middle school Mr. Sense and I attended, every student had to run the mile once a week in gym class. Even though Kid is homeschooled, we didn’t want her to miss out on this healthy/fun/terrible tradition. So once a week, all three of us trek to the track and run. We take turns, and the two waiting people time the runner and shout encouragement. We have a spreadsheet to track each person’s times, including individual lap times, so we can set goals and find patterns.
Obviously, we’re a very cool family.
As the runner passes the line for each lap, the others shout out the time, so the runner can know if she’s on track for her final goal. This past week, we decided to conduct a psychological experiment and NOT call out the lap times. Would we run faster not knowing if we were a little ahead or behind our goal pace?
I went first. I felt good, like I might set a personal record for the summer. I really picked up the pace on my last lap, not wanting to accidentally miss my goal by just a few seconds. But when I finished, the final time was very disappointing– more than twenty seconds off from my recent times. Mr. Sense and Kid had similar outcomes– we all felt just as tired as usual by the end, but suffered setbacks on our times. Same people, same track, same distance– worse results.
I wouldn’t term the experiment a failure, however. We learned that more knowledge translates directly to better results. And we can put this principle to work in lots of areas of life, including personal finance.
The Bible is full of practical advice on financial matters, including an emphasis on the importance of planning. Proverbs 21:5 says “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to want.” We can see two elements to a successful venture from this verse: planning and diligence.
Whether you’re a kid saving up for a video game or a young adult aspiring to early retirement, knowing how much you need and having a roadmap to get there is essential. It’s not enough to vaguely plan to cut back on a few things or generally “save more.” We need to make a plan and then diligently carry it out.
Most FIRE folks use the 4% Rule as a guide– the basic idea is that when your investments need to total twenty-five times your annual spending, then you’re officially financially independent. Step one is finding out what your annual spending is, and then picking a target annual spending total.
As the financial independence movement has grown, different flavors of FIRE have emerged: Lean FIRE is the more extreme end where adherents often forgo what many people consider essentials– car ownership, some utilities, even standard housing. Fat FIRE is on the opposite side of the spectrum, where people aspire to more traditional trappings of success and world travel is frequently a priority. Other FIRE-adjacent lifestyle choices– environmentalism, minimalism, localvore, homesteading, etc.-- are gaining popularity as well. All of these require planning and intention.
So, after deciding on our goals and priorities, how do we transition to the planning stage, and then hopefully the doing stage?
Mr. Sense and I aren’t planning to sell our house to live in an RV full time, and we aren’t interested in swearing off restaurant dining. We would consider ourselves fully FIREd with $1.5 million invested, allowing us $60,000 of giving and spending per year using the 4% rule.
Having this figure in mind, even if we make adjustments over time, allows us to track whether or not we’re on track. We’d like to hit our goal in about eight years, by my fortieth birthday. So we can subtract our current investments from $1.5M and divide that number by eight to have a rough idea of how much we need to grow our portfolio to get there. Of course, this growth won’t be even. We expect capital gains to accelerate over the years, albeit inconsistently. Income from my sales job fluctuates, and there will be big ticket expenses, planned or otherwise (Kid’s college education comes to mind!).
As a non-millionaire myself, I understand that dividing out giant dollar figures by a smallish number of years and seeing a still large average annual gains-required figure can feel kind of discouraging. And that’s probably why almost no one does it! Most of my friends, including financially responsible people with good credit scores and emergency funds, dutifully contribute 5-15% to their 401(k)s and cross their fingers that it will all work out. Over a long enough working career, it may shake out. But I’m trying to get there on a much shorter timeline.
It’s hard for our brains to comprehend the snowball effect of accumulating wealth. But as chart after chart demonstrates, saving your first $100,000 is way more challenging than the second one. So as long as we keep saving and investing wisely, early retirement is possible for most middle income earners.
Financial independence takes time, and diligence in saving and investing over time is the secret sauce to get there ahead of society’s schedule. For best results, we should develop a plan of action and monitor our progress along the way. Committing our finances to God and then planning how to best steward our resources puts us on the right path.
