Happy New Year, everyone! Welcome to 2021. This blog is almost a year old, that seems crazy! Looking back, it appears that those posts that involved detailed numbers are well-liked so to start the year off, I’m going to bring FIRE to the discussion. FIRE is not about literally burning anything. It is a personal finance approach acronym that stands for Financial Independence, Retire Early.
There are many detailed explanations about FIRE but at its core, it is having enough money being generated as passive income so that you can retire early (passive income is revenue streams like rentals and portfolio interest). If you want to investigate FIRE in its entirety, there are lots of podcasts and even a documentary on Netflix. However, as farmers, FIRE and the FIRE movement holds a wealth of strategies that are incredibly useful.
At it’s core, FIRE promotes financial independence. Financial independence is status of having enough money saved up to pay one’s living expenses for for an extended period of time without having to be employed or dependent on others. That can be a healthy savings account that generates enough passive income to pay those living expenses. Or it can be a business that does the same.
If you venture into the FIRE blogging space, you will read about the FI number which is equal to your annual expenses multiplied by 1 over the safe withdrawal rate. The save withdrawal rate is the amount you can take out every year without depleting your savings. The theoretical rate is 4% based on an extensive study so that typically means your FI number is your annual expenses multiplied by 25. If you want to read more about the rates, I suggest this blog.
How does this apply to farming?
Farming is capital intensive usually. If you’ve read this post, then you’ll know that in all likelihood, you need at least $100,000 saved up to consider buying a farm. While FIRE involves saving up to retire early or to eliminate dependence on a job, using the FIRE tips and tricks to save up for your downpayment or next big purchase works. Your FI number becomes your Farm Independently number. This is the amount you need to build your farm to a size where you can farm full-time.
Spend Less, Save More
FIRE is about aggressively saving and this approach is very useful when you are saving for a farm. At the end of the day, it is simply spending less than you make. Aggressive savings goals in the FIRE community can be saving 50% or more of their income. Let’s apply this in our farming context. StatsCan says the median salary for Canadians aged 25-34 is $39,500 with an average of $45,700.
Bringing home a salary of $45,700, if you saved 50% of that, you’d be adding $22,850 to your TFSA or other savings account annually. You’d also be living on that amount so you’d be a frugal person but you would have your $100,000 down payment in 4.4 years. That’s about the length of a university degree. It all comes down to spending less money than you make and the more willing you are to live frugally, the faster you will get to your goal.
Elminate Consumer Debt
The first step in a FIRE journey and in your farm journey should be to eliminate consumer debt. Consumer debt is any debt that is not associated with a mortgage on a house or a business. This means you should be paying off your credit card monthly and there should not be a loan on your vehicle.
Keeping a credit card without carrying a balance is a great way to improve your credit score. So no, don’t go cut up your credit card. Instead, treat it like a debit card. Purchase groceries and gas on the card and pay it off in full every single month. Leave the limit low so that you are not tempted to spend more. Credit cards are not an emergency fund, they are only a credit score building tool.
Eliminating consumer debt will go a long way towards helping your savings goal. Let’s go with a car example. If you are spending $100 bi-weekly, you are spending $2,600 annually just on a car payment. Looking up a 2021 F150, the financing offer is $243 bi-weekly, which is $6,318 before gas, repairs or anything else. In most cases, $6000 or so will get you a decent enough older used car. Not only will the vehicle loan/lease eat into your budget, they are generally in negative equity, meaning you owe more than the vehicle is worth.
Other Tips & Tricks from FIRE
The FIRE communities and blogs are filled with tips on investing and living frugally. There are also suggestions on how to negotiate higher salaries and avoiding lifestyle creep. I’ve rounded up some blog posts that might be of interest and are worth the read.
- Would We Be Richer If We Had Bought A House – Millennial Revolution – a worthy read if you ever thought buying a house before buying a farm was a good idea.
- FI School – Eat Sleep Breathe FI – an excellent overview of FI in a Canadian context
- Budget Travel – Money We Have – travelling can be costly and one thing the FIRE community has figured out is how to travel on a budget. While travelling is not an option right now, I’m including this for future reference.
- Explore FI Canada – a Canadian FIRE podcast – highly recommend for that Canadian personal finance perspective and you can listen while doing chores!
- Master the BIG Stuff – Transportation – Modern FImily – This blog post is all about cars and it’s from a great Canadian blog. A must-read to follow-up with my example above.
There are lots more out there but I hope this post sheds some light on how changing your spending habits in your personal life can really have a big impact. Most the blogs referenced here are raising families in Canada for $30,000 or less annually while saving significant amounts of cash. If you’re trying to save up to grow your farming journey, I’d start with FIRE.