Coast FI to Solopreneur
How the Financial Independence, Retire Early (FIRE) movement helped me get comfortable taking a risk.
I want to share how I got financially comfortable enough to take the leap into entrepreneurship because I think it will shed some light on how you can do it too.
F.I.R.E.
Shortly after graduating college and getting my first job, I heard about something known as the FIRE (Financial Independence, Retire Early) movement. This is a fairly popular term now but in case you don’t know, it’s all about creating margin between how much you make and how much you spend (i.e. living below your means). This gives you the opportunity to invest the difference in hopes that compound interest will do the rest of the work to generate enough wealth for early retirement.
The FIRE movement gets a bad reputation in some circles because many that are on this journey live so frugally that they sacrifice any source of joy or excitement in their life if it requires them to spend money. Of course, those that are not fans of this movement point out that tomorrow is not guaranteed so why would anyone delay gratification for something that may never come to fruition.
Like most things in this life, one’s financial situation is a compromise that requires trade-offs. While I would never advocate for not preparing for your future financially, I also don’t agree that a never-ending cycle of delayed gratification is the correct way to live either. I think both of these financial mindsets operate at the extremes and create the worst kind of life. At least as it comes to money.
My personal take here is: Everything in moderation, including moderation.
Start Investing
With that disclaimer out of the way, I have always leaned more saver than spender so the FIRE movement naturally appealed to me. I even remember being called a “tightwad” as a kid after I decided to put my birthday money into a savings account instead of spending it on a toy or video game. I mean seriously, what kind of kid does that?
After doing some research on how I could become financial independent, I realized it was pretty simple. Not easy, but simple. All I needed to do was start investing some of my paycheck each month into low cost index funds and with any luck I should be able to hang up my work boots and sit on the beach by the time I turn 45.
So that’s what I started doing. Every paycheck, I would stick a percentage of my gross pay into my 401k and collect the employer match as well. As my career progressed, I was promoted a few times and with each raise I would try to invest more rather than allow lifestyle creep to absorb the extra.
At first, the balance wasn’t much to look at, but over time I could start to see why Albert Einstein called compound interest the eighth wonder of the world.
Coast FI
As my investments (and the stress at my job) grew, I started paying more attention to what it meant to be financially independent. Without going completely down the FIRE rabbit hole, there are many different levels of financial independence (FI). The one that stuck out most to me was a concept known as Coast FI.
To consider yourself Coast FI, you must have saved enough now that your investments will grow to the amount you need to stop working by normal retirement age without any additional contributions. This amount is referred to as your “FI number” in the FIRE community.
For example, you are 35 years old and have $400,000 currently saved for retirement. You would like to stop working at age 65 with a nest egg of $3 million. Assuming an annual compounding rate of 7% over this entire period, you will have just over $3 million without having to contribute anything past the original $400,000.
Long story short, compound interest and time are all that’s needed to “coast” your investment portfolio into retirement. This is made possible by prioritizing saving early in your career. Again, the key here is that no additional contributions are necessary once you reach this level of FI. All you need to do is cover your normal living expenses until you hit your FI number.
Quick aside: If you want a much more detailed explanation of Coast FI, check out the Fioneers’ article.
This type of financial independence appealed to me because the “retire early” part of FIRE just didn’t seem to be that interesting anymore. Don’t get me wrong, never having to work again sounds great on the surface but the more I thought about it, the more I knew I would miss the opportunity to create value, do something in which I have deep knowledge and expertise, and ultimately use my skills to improve the world in my own small way.
Most people are saving for retirement until the day before they retire. Coast FI removes that burden and in turn dramatically reduces the amount of money needed to fund life today. This effectively creates additional margin in your financial life that can be spent on something like getting a lower stress (and most likely lower paying) job or, as in my case, starting a business without the risk of pushing back normal retirement age.
This is the ultimate have-your-cake-and-eat-it-too scenario, in my opinion! I can start working on my goal of building a business to enable more flexibility in my life without having to significantly risk my financial future.
Of course, I still need to find a way to cover my living expenses until the business starts to generate income. To do that, we are using a mix of my wife’s income and funds I have been saving specifically for this opportunity. With any luck, those funds will bridge the gap, but if not, our significantly lower expenses because of no longer having to save for retirement provide much more optionality around how to cover the shortfall.
So that’s the financial strategy I am using to mitigate as much risk as possible while moving from a consistent paycheck to starting from scratch. There is no strategy that is perfect and at the end of the day, you will have to assume some risk if you are ever going to take the road less traveled.
The point is, find the strategy that works for you and then go build your future.
Thanks for taking the time to be on this journey with me!
-Aaron