February 2024 Portfolio Update
Sunday 3rd March 2024
The 9 Stages of FIRE
The further I get along in my FIRE journey, the more I have begun reflecting on just how far I have come. When I started my FIRE journey in 2018 most of the content was around the standard FIRE approach - build 25x your annual expenses and you can retire. As my journey has progressed, thankfully there are a lot more options when it comes to choosing a path to FI.
These paths make the whole journey so much better, as they break the FI accumulation phase up into smaller goals. We are just over 6 years into our FIRE journey, yet it took us 3 years to build our FI pot to €100k. The initial progress was slow, and it didn’t feel very rewarding. At the time, while €100k was a lot for us, it was still a long way from where we needed to be.
Ironically, when I break the steps to one’s FIRE journey down step by step, hitting €100k was actually hitting stage 4 of the journey. We were only one eighth of where we needed to be, yet in terms of the stages, we were nearly halfway!
The reality is, the compounding effect plays a huge part - and I am not just talking about investment returns. I am talking more in relation to our ability to get better at earning money and reducing our spending. The reality is, if one commits to FIRE, they will increase their income over time, while keeping on top of their expenses and increase their saving’s rate dramatically as they progress.
In our case, we have seen our income increase 3x since we started our journey in 2018, yet our expenses are roughly the same. This has resulted in a heap of extra income to put straight into our FI portfolio.
Infact, I was reading through old emails from 2021 earlier this week, and saw one mentioning my day rate at the time (which I had quoted as being quite high) - I had a quiet chuckle to myself when I realised since then, the amount I can earn in one day has increased significantly.
This is why it can be misleading when seeing my numbers now, compared to what I started out with back in 2018. It can be easy to say “Michael is in IT, his numbers are naturally going to be big”, or “Michael is living in Limerick, the cost of living isn’t as high as where I live”, but the reality is, when we started in 2018 our income was below average for a family of five, and our expenses were like the majority of non FIRE people - spending what we earned and struggling to get through month to month.
I have been delighted recently to receive a couple of emails from followers of the podcast who mentioned that they have tried to use some of my own FIRE approach as a blueprint for their own journey - and this is definitely inspiring. I know that every FIRE journey is unique, but I think there are aspects of what we have done that can be replicated - at least at the core. Keeping on top of your expenses and focusing on ways to increase your income, while saving the difference is the way to go. For many, simply being open to job switching and actively pursuing new job opportunities can be a simple path to start on increasing your income!
But back to these 9 stages of FIRE. I will go through each one, one by one and finish by explaining which stage I am at.
1. Ground Zero / Debt Freedom
This first stage might surprise you - but actually, I think being able to start from a place of zero or positive net worth is a huge thing. I know a lot of people come into FIRE with the bad type of debt - be it from consumer debt or car loans - so it can be a hard place to start when there is debt to be cleared first.
We were extremely fortunate that we purchased our first property when prices were very low in 2013. We were equally lucky that when we started in 2018, we didn’t have any debts aside from our mortgage.
It should be noted, I am not against personal loans if they are going to save you money in the long term. We took a personal loan in 2022 to upgrade our car (to a more efficient model that saves us at least €1,500 a year in fuel). We also took a loan to install solar panels, which have resulted in us not making an electricity payment since September 2022 (thanks to the government credit’s which got us through the winter).
Looking further back, I was also very lucky to have paid off my student loan back when I was 23. At the time, I felt I was making a mistake paying it off so early, but in hindsight, it was a great thing to do. I was also very fortunate that my wife didn’t have any debt herself when we met - so neither of us bought debt into the relationship.
2. Home Ownership (Optional)
Not everyone will agree with this stage, which is why I mentioned it is optional, but I actually think home ownership is extremely important. We now have a global housing crisis, so no matter where you live in the world, housing is going to be an important consideration. Regardless of if you need a house to live in yourself or not, taking advantage of getting up to a 90% loan from the bank to pay for a property can only be a positive step.
Keep in mind too, your long run expenses are going to be far lower once your mortgage is paid off. While the equity in our own personal home is not part of our FI portfolio, the reduction in annual expenses is calculated in our ‘Die with Zero’ calculator, which we use to work out our FI number. As a result, our FI number is far lower than if we were counting on renting for the rest of our lives.
We were fortunate in 2020 to be able to leverage the equity we had gained in our property to buy another property and turn our first home into an investment property. We would not be so far down the road in our FI journey now, had we not purchase that first property in 2013.
3. Emergency Fund
I had a friend recently who called me late at night in panic as he just burst two tyres in his car hitting a speed bump too fast and didn’t have enough money in his bank account to get it fixed (he was being paid in two days time).
I was more than happy to help him out, but I could tell that the whole situation left him extremely stressed.
When we got caught in London in August 2023 due to a UK air traffic control failure, we were able to purchase new tickets home the next day - saving ourselves being stranded for an extra day waiting for the free alternative flight we had been offered. We leveraged our emergency fund to get ourselves out of an emergency (and ironically were later reimbursed by Ryanair for the extra flights).
Having three months income available to you is powerful. It breaks the weekly / monthly spending trap that most non FIRE people fall into. No more waiting for payday to do something - in fact one will soon start to forget when payday is - and just enjoy life without the stress of worrying if one can cover an emergency.
4. FU Money
Once the portfolio hits around €100k it's usually enough of a big number to feel pretty good about one’s finances. There is a sense that you can cover most big expenses if you HAD too - and this certainly makes living a whole lot easier.
You are likely not FI on a €100k portfolio, but equally you can likely cover your families expenses for a couple of years if you had to liquidate. Life just feels that much easier.
5. Coast FI
Life only gets better once you reach Coast FI. Coast FI is defined as when your portfolio reaches an amount where if you never added another contribution to your portfolio, you will be able to have a comfortable retirement at the traditional retirement age (say 67).
Your Coast FI number will depend on your age, your FI number and when you plan to retire, but there is a good explanation of Coast FI on the Money Flamingo Website, as well as a link to a useful Coast FI calculator. You can access the calculator by clicking on this link.
I typically used a real return rate of 4 or 5% to calculate my own Coast FI number. This should typically be anywhere from 25 - 35% of your overall FI number depending on your age.
Just as a bit of a reminder too, please keep in mind I typically recommend using the ‘Die with Zero’ calculator rather than the 4% rule when calculating your FI number, especially if you live in a country with free healthcare in retirement and / or a decent State Pension. The 4% rule doesn’t really account for a reduced cost of living once you get older - yet the ‘Die with Zero’ calculator does just that!
Once you hit stage 5, you can technically stop adding more contributions to your portfolio if you wanted too. You will hit FI at some point, the question now just becomes when will that be.
6. Flamingo FIRE
Flamingo FIRE is a term that was coined by Tina from the Money Flamingo blog. You can learn more about it by clicking here, but it is typically defined as hitting half of your FI number. We hit our Flamingo FIRE number last year, and the second half of the journey looks a lot better than the first half - with us having a lot more options when it comes to things such as semi-retirement and cutting back on contributions and even full time work if we wanted to.
7. Lean FIRE
Lean FIRE is a bit of a strange one. It is defined as being able to retire on a limited, basic income that will cover your basic living expenses. It means that your retirement will be one of either living frugally or likely still working in some capacity to cover your non basic expenses.
I really like Financial Samurai’s definition of Lean FIRE:
“Pretending that you are retired to friends, family, and social media, while one partner is working a full-time job and/or you're hustling your tail off to make supplemental income”
The reality is, most people who achieve Lean FIRE aren’t going to actually retire, but there is a nice sense knowing that at least your basic expenses are covered. Like hitting Coast FI or Flamingo FIRE, it at least gives another option in the tool kit - you can perhaps cut back work further, knowing that no matter what happens, your basic living expenses are covered.
Lean FIRE will depend on how much someone spends on basic living costs versus discretionary spending, but I like to think Lean FIRE is likely going to be around the 75% of your FI number mark.
8. Full FIRE
Finally, stage eight is the one that needs no introduction - hitting your actual FI number goal. Where you can live a quality life for the rest of your life, without needing to work again. Typically defined as 25x your annual expenses, or my preferred way to calculate - when your ‘Die with Zero’ calculator balances without needing to add any more contributions to your portfolio!
9. Fat FIRE
It might seem strange that stage 9 is Fat FIRE. Fat FIRE is defined as building a FI number where you can live your life 100% on your own terms, without having to worry about money.
I think one of the biggest misconceptions about FIRE is that the end of the road is Full FIRE. The more I learn about the movement, the more I understand that very few people actually retire in the traditional sense when they retire. Most will leave their 9-5 job or full time work, but most end up continuing to bring in some form of income after retirement.
I won’t be any different. I 100% plan to give up full time work when we hit our FI number, but I will still work on a causal basis post FI. This is because I understand now more than ever, that meaningful work, and work with a lifestyle balance is really the key to a fulfilling life.
I just want to be able to work 100% on my own terms and have the option whether I want to work or not.
Keep in mind that I am already at a point where I don’t need to continue making contributions to our portfolio and thus technically could leave full time work now and just work part time to cover our expenses. If I am honest with myself, my main reason for not doing this is I want any work to be optional. Yes, I could leave full time work today and work part time, but that work would still be something I have to do to ensure that our family can cover our expenses.
Working part time or on a casual freelance basis also has a lot less job security than working full time, so I am also aware that I don’t want to jump too early, only to find myself short of work when I actually need it. I guess some might say that this is fear holding me back - but between having five mortgages at the moment, a family with three children and being the sole income earner I think there are genuine reasons for not wanting to jump from a safe full time contract to an ad hoc freelance basis for work just yet. Things will definitely be different once we have cleared some of our mortgages and there is rental income coming through each month.
And thus, like most in the FIRE community who hit their FI number, we will likely just be another example of early retirees that don’t really retire! We will retire from a traditional full time working role, but that is all. I heard recently the term “Financial Independence, Recreational Employment”, which I thought was a good example of what the FIRE movement is really about.
Keep in mind, none of this takes away from what FIRE is all about. The FI part is the most important aspect - what one does with their life after that point is really up to them.
But it is important to keep in mind that hitting Full FIRE isn’t the end of the road, just the start of another part of the journey.
As for my own journey, here is a breakdown of my current progress stage to stage. I am using the FI number of €832,000, which was my latest estimated FI number when I last updated our ‘Die with Zero’ calculator back in January.
| FIRE Milestone | € Amount | Percentage Completed |
|---|---|---|
| 1. Ground Zero | €0.00 | 100% |
| 2. Home Ownership | n/a | 100% |
| 3. FU Money | €100,000 | 100% |
| 4. Coast FI | €136,810.45* | 100% |
| Flamingo FI | €416,000 | 100% |
| Lean FIRE | €624,000 | 84% |
| Full FIRE | €832,000 | 63% |
* I calculated our Coast FI number using the following formula:
Coast FI number = FI number * (1 + Interest Rate) ^ -Number of Years to Retirement
€136,810.45 = €832,000 * (1 + 0.05) ^ − 27
As a note of interest, I did carry this task out before in December 2022 if you are interested to compare my progress from then until now. My FI number has increased slightly since then thanks to inflation. Note too, my Coast FI number has also increased due to me getting a little older!
February 2024 Portfolio Report
February was another month in the right direction. Stocks were up again to new record highs and the stock portfolio reflects this. I got news at the end of February that one of my pension providers, Davy, is increasing their minimum annual charge to €1,000 per year. I have a little under €50,000 in the account, which is working out at a 2% charge per year. I now need to work out what I am going to do about this.
We added a little extra than normal into the portfolio to help the cashflow out with our personal cash. Most of our cash savings are in our company, but with doing some maintenance work last month we needed to add a little bit more cash into our own personal savings to cover the cost.
Our rental properties had a solid month overall with no major issues.
| Portfolio Summary (as at 29th February 2024) | |
|---|---|
| Opening Balance | €509,533.47 |
| New Contributions | €6,000.00 |
| Portfolio Growth | €9,370.74 |
| Closing Balance | €524,904.21 |
Monthly Portfolio Growth Report
| Monthly Portfolio Growth Report | |
|---|---|
| Capital Gain + Dividend Income from Equities | €6,175.73 |
| Real Estate Income | €3,189.55 |
| Interest on Cash Savings | €5.46 |
| Total Growth | €9,370.74 |
| % Return | 1.82% |
Portfolio Breakdown
The table below shows the breakdown of my portfolio into the various asset classes:
| Portfolio Asset Breakdown (as at 29th February 2024) | ||
|---|---|---|
| Equities (Stocks) | €164,655.59 | 31.37% |
| Real Estate | €359,312.44 | 68.45% |
| Cash | €936.18 | 0.18% |
| Total | €524,904.21 | 100.00% |
2024 Year to Date Returns
Here is a summary of my year to date returns for 2024.
| 2024 Year to Date Growth Report | |
|---|---|
| Opening Balance | €498,900.39 |
| New Contributions | €11,000.00 |
| Equities Capital Gains + Dividends | €11,375.23 |
| Real Estate Capital Gains + Rental Income | €3,618.78 |
| Interest on Cash Savings | €9.81 |
| Closing Balance | €524,904.21 |
| Portfolio Return | €15,003.82 |
| % Return | 2.94% |
Lifetime Portfolio Returns
Here are my returns since I started in 2018.
| 2018-2024 Growth Report | |
|---|---|
| Opening Balance | €0 |
| Contributions (Money Added) | €352,867.78 |
| Equity Release* | €41,220.21 |
| Real Estate Capital Gains + Rental Income | €94,758.91 |
| Equities Capital Gains + Dividends | €39,912.23 |
| Interest on Cash Savings | €9.81 |
| Other** | -€3,864.73 |
| Closing Balance | €524,904.21 |
| Portfolio Return | €130,816.22 |
* In 2020, some of the new contributions came in the form of an equity release, as we turned our primary residence into a buy to let and purchased a new home to live.
** In 2018 & 2019 I made several bad investments in peer to peer lending, forex trading and unregulated investments, which resulted in losses overall.