FIRE is an acronym for Financial Independence Retire Early.
Financial Independence is the position of having enough income to pay one's living expenses for the rest of one's life without having to be employed or dependent on others. Your FIRE number is 25 times your annual expenses. For example, if you believe your average annual expenses for your lifetime will be 40K, then 25 x $40,000 = $1,000,000. This means you need 1-million dollars in assets and investments to retire early, and you have reached Financial Independence or FI.
CoastFI is a step along the FIRE journey. It’s when you have already saved enough in your investment accounts that if left to grow until your designated retirement age, you will have enough to live comfortably. To find your CoastFI number use the formula below; and yes, math is involved!
CoastFI # = FI # / (1 + Expected Growth Rate)^(# of years until retirement)
Let’s use an example.
FI # = $1,000,000
Expected Growth Rate = 0.06 (6%; you choose this number based on your investment allocations; choosing a lower percentage will provide a more conservative estimate.)
# of years until retirement = 10 (Pretend you want to hit the full FIRE number in 10 years.)
CoastFI # = FI # / (1 + Expected Growth Rate)^(# of years until retirement)
CoastFI # = 1,000,000 / (1 + 0.06)^(10) = $558,400 (rounded to the nearest hundreds place value)
This means, you need about $558,400 invested today, and in 10 years you'll have reached your FIRE number, if you don't touch these investments, and you don't contribute more to them.
Some people achieve CoastFI and FIRE through saving and investing over many years, while others build successful businesses that can generate income without daily supervision. In my case, I’ve done both, saved and invested, and developed a business that generates more than my annual cost of living without having to “work” it. I do monitor a few things within the business that take at most 2-5 hours a week of my time. By creating a business model where I can step back and not be involved in day to day operations, I consider my earned income from this source passive. In addition to my investments generating income and my business providing passive income, I receive royalties from books I’ve published back during my professor years. The key element for “coasting” is having income that exceeds annual expenses, so you don’t touch your investment accounts until they reach the full FIRE number (25x annual expenses).
How did I reach CoastFI?
Self Reflection. I recognized my addiction to consumerism and understood I had succumbed to lifestyle inflation. Although I climbed the corporate ladder, and earned more and more as years progressed, I spent all of my income if not more. I knew this behavior had to stop immediately.
Read and Research. Discovering the FIRE and Digital Nomad communities was paramount for my journey. I learned how cost efficient it was to travel the world, develop a minimalist lifestyle by downsizing to just a few bags of belongings, and finally understood the magic formula: increase income + decrease expenses = save radically and invest wisely.
Make and Plan and Execute It. In 2019, I sold everything and eliminated all debt. The sale of my house was a huge turning point. The day I received 127K profit from the sale of the house was euphoric and I felt free. I invested that profit and became excited to watch compound interest do its magic. Then I left the US and explored parts of Mexico, Ecuador, and Belize. In the specific places I lived, I did not have access to the abundance of consumerism. No more shopping sprees for unnecessary crap that I truly didn’t need. In 2020, my focus was growing my business, which exploded when every school went online across the world due to Covid. Since I was spending little each month on my new lifestyle, I was saving and investing an plethora of money each month. It was insane and I never experienced anything like that before. Saving and investing became fun! Between the sale of my house and saving radically in 2020, I doubled my net worth in just 2.5 years, reaching my CoastFI number. Absolutely amazing!
Create Passive Income. In 2020, I started growing the team of contractors that work for my business. Today, they have taken over the majority of the services the business provides and I was able to change my role as the primary consultant and content developer, to only the business owner. I no longer do the physical work of my business, but I do make sure it keeps functioning which requires a few emails each week. The business still generates more income than my annual expenses so I’m able to keep watching my investments grow and not touch them. This is the goal of CoastFI; have a nest egg large enough it will grow naturally by compound interest, and continue to live off of passive income so you don’t need to touch investments until they reach your full FIRE number.
I think it’s important to emphasize a huge misconception about retirement, or early retirement. Just because someone retires, it doesn't mean they never earn income again. Most people in the FIRE communities are interested in forming multiple income streams. However, they become set up in a way that you don’t have to actively work and manage the projects/businesses. In my case, I probably spend more time weekly reviewing my investments and buying more positions when I have extra income, compared to the few hours I spend monitoring my business. This is why I describe myself as retired because I no longer have to go to work.
What is next?
I am going to enjoy life with friends, family, hobbies, excursions, passion projects, and exploring. And some days I’m going to relax, like today, where I’m laying in a hammock getting ready to read a book.
Some of my favorite aspects of CoastFI is having choices and freedom of time. I don't have to work anymore. Yet, if I feel uncomfortable with my retirement plans at any time, I can start generating more revenue with my business, or pursue other opportunities that I would have never attempted before because I was too consumed with living paycheck to paycheck and not having the time to do so. Financial independence has opened a whole new world of opportunities and I'm excited to see what the next few decades will bring. For now, I'm going to sit back and coast.
