Financial Independence?

Here at House Truck Life, we’re going to talk a bit about FIRE – Financial Independence Retire Early.

So what the heck is financial independence?

If you haven’t come across the idea before … To put in the simplest terms: Financial independence is when the income you receive from your assets is enough for you to live off. And when that happens, working a job becomes OPTIONAL.

That’s right, the daily grind of 9-5 that most of us have internalised as ‘normal’ can indeed become a thing of the past, and waaay sooner than you might think.

There are two ways to be rich; one is by acquiring much, the other is by requiring little.

Think about that for a second … If you focus your life on things that bring joy and fulfillment, ‘very little’ is all you really need for a happy life.

Now it might seem that owning a large house truck is the opposite of ‘requiring little’. Often when people see our house truck out and about they assume we are above average wealthy; that we won the lottery or some other variation along those lines. And this makes sense, when we researched getting a house on wheels made for us by some of the big name manufacturers here in Australia, the price started at $500 000 and went up from there. For one with decent specifications (like the one we have built ourselves) you would not get any change from over $1 million! In fact, we could not find a manufacturer who would build one to meet our requirements of a house not a motor-home. That is why we set about making our own.

But the truth is we achieved the ability to QUIT OUR JOBS not by acquiring much, but in fact by requiring little. There’s more on this to come, but choosing a house truck instead of a house slashes the time required to reach FIRE by a very large amount.

The less you need or perceive as ‘necessary’ in your life, the closer you are to financial independence, straight out of the gates. Lets take a quick look at the traditional path to FIRE.

The Traditional path to FIRE

The journey to FIRE typically follows a three-step blueprint for people who are wage-slaves like we used to be:

1. Save Aggressively: FIRE enthusiasts are often masters of budgeting and frugality. The aim is save a significant portion of your income — usually 50% or more! By cutting down on unnecessary expenses, you can accelerate your path to financial freedom.

2. Invest in income producing assets: Saving money is crucial, but investing it wisely is the secret sauce to achieving FIRE. The power of compound interest turns your hard-earned savings into a growing fortune. FIRE proponents often invest in low-cost index funds, real estate, or other income-generating assets.

3. Retire (or Re-imagine): Once you’ve amassed enough wealth to safely cover your living expenses, you can choose to retire early, start your own business, pursue a passion project, or simply take a well-deserved break. It’s your life, so you can now remove the concept of *necessary from your mental construct of what work is, leaving a different thing in it place; you can actually choose.

There is a lot of information out there already on how to achieve FIRE and the stories of people retiring in their late 20’s or early 30’s have made headlines in the mainstream media. There’s even a Netflix doco. But applying this formula of living beneath you means, investing aggressively and letting compound interest do the rest has it’s pitfalls when it’s applied to the situation here in Australia. I’M LOOKING AT YOU, RIDICULOUS COST OF HOUSING! But that is for later articles, this post is for the basics of FIRE. So lets have a look at an example to illustrate.

Tracy: The Average Australian

The FIRE Trajectory for an ‘Average’ Income

Let’s look at the over simplified and fictitious example; Tracy. Tracy earns around the average income for a person in Australia of $1400 per week AFTER TAX (which is $72 800 per year after tax). That is her take home pay that she can choose to do what ever she wants with. This would be roughly equivalent to a gross income (before tax) of $95 000 per year.

Tracy is starting from a point of zero net worth. That’s right, no savings, no investments … nada.

Tracy discovered the concept of FIRE when she was at school so she decided to always live below her means and invest 50% ($700) of her take home pay into income producing assets. The assets she chose were low-cost index funds so the returns she received were the same as all the top 300 companies in Australia combined (minus a very low fee of around 0.05%). Low fee’s are also very important to your FIRE journey, more on that later too.

In this example we’ll assume an 8% annualised return.

Year 1: $36,400 (Initial $0 + 52 weeks of $700)
Year 2: $78,912 (Year 1 + 8% growth + $36K)
Year 3: $126,953 (8% growth + $36K)
Year 4: $180,947 (8% growth + $36K)
Year 5: $240,366 (8% growth + $36K)
Year 6: $305,717 (8% growth + $36K)
Year 7: $377,547 (8% growth + $36K)
Year 8: $456,441 (8% growth + $36K)
Year 9: $543,034 (8% growth + $36K)
Year 10: $638,015 (8% growth + $36K)
Year 11: $742,121 (8% growth + $36K)
Year 12: $856,149 (8% growth + $36K)
Year 13: $980,948 (8% growth + $36K)
Year 14: $1,117,425 (8% growth + $36K)

So, it took 13.3 years to become a millionaire. Not bad.

This would give Tracy a passive income of between $44 000 to $55 000 a year to live off, depending if she was happy to withdraw 4% a year or 5% a year from her portfolio.

But wait, Tracy has been living off $700 a week all this time, which is only $36400 per year. If she was comfortable living off this much, she could have quit her job when her passive income reached $37500 per year. That was only 11.5 years into her working life.

If Tracy started work at 18 years old, she could pull the FIRE trigger 29 years and reclaim her life. Or keep working if she wanted to grow her stash for a more ‘comfortable’ income in retirement.

Reclaim Your Future

Tracy now has soooo many options available to her, because she has a bit of control over her life. No longer living pay check to pay check, she can choose to take her life in a direction that interests her.

If she chose to keep working for 3 more years, she could reach a net worth of $1.6m or if she wanted to work until she was 38 years old (which is 20 years of savings), she could quit with a net worth of $2.25M

Year 15: $1,266,566 (8% growth + $36K)
Year 16: $1,429,491 (8% growth + $36K)
Year 17: $1,607,442 (8% growth + $36K)
Year 18: $1,801,769 (8% growth + $36K)
Year 19: $2,015,981 (8% growth + $36K)
Year 20: $2,253,761 (8% growth + $36K)

Now this is over simplified and does not take into account factors like increases in her pay enabling her to save more, or inflation eating away at her savings. These things are assumed to cancel each other out in this example. But you get the idea. If you live beneath your means and invest at least 50% of your income, you can ‘buy’ your freedom back in the form of a passive income to support you, way faster than most people think. Reaching FIRE allows you TIME to chase the other dreams in your life.

Maybe being an active parent with your kids?

Maybe writing a book?

Maybe taking the time to work out what enables self actualisation for you.