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I recently developed a course called Reaching FIRE. I designed the course specifically for those who may not be financially-inclined. By simplifying concepts, my hope is to motivate people to reach financial independence with the ability to retire early.
Here is the link to the course online: REACHING FIRE. Below, I’ve provided more context for the course as well as provided the the 12 Pillars and a little about each.
One of the biggest pitfalls that I’ve seen in financial courses is a condemning tone. If people feel defeated instead of motivated to make financial changes, they will more likely continue to remain in a cycle of bad financial habits. With that in mind, I decided to create a course that provided options for people with an emphasis on working backwards. If you know your end goal, it makes it that much easier to reach your smaller goals along the way.
It is up to you to determine how quickly or slowly you want to move towards your goals. The emphasis is still maintaining enjoyment in life. For some people that may mean working longer, while others may seek earlier retirement.
Personal finance is personal for a reason. What works for one person may not work for another.
So without further ado, here are the 12 Pillars to Reaching FIRE. I am sharing small excerpts to describe each Pillar in its corresponding order. For those who may not care for religion, you can skip the first two.
Pillar #1 – Read Your Bible
What does the Bible have to do with money? Everything. Do you know that the Bible speaks to money over 800 times?
Joshua 1:8 “This Book of the Law shall not depart from your mouth, but you shall meditate on it day and night, so that you may be careful to do according to all that is written in it. For then you will make your way prosperous, and then you will have good success.”
From contentment to giving, from greed to debt, the Bible is full of wisdom and teaching on money. The Bible provides an excellent roadmap for how we should handle our money and honor the Lord in all we do.
Pillar #2 – Start Tithing
Leviticus 27:30 “Every tithe of the land, whether of the seed of the land or of the fruit of the trees, is the Lord’s; it is holy to the Lord.”
Tithing is simply giving back to God a portion (10%) of our earnings. In 2 Corinthians 9:7, we learn that God loves a cheerful giver. A generous heart should characterize our giving back to Him.
Accordingly, I wrote a post about giving to charity and how doing so provides immense fulfillment.
Pillar #3 – Find Your Retirement Number
You need 100% of your future spending in retirement.
The specific amount that you will need will completely depend on you. If you plan to jet set around the world after you retire, you may need more than 80% of your work income in retirement. If you plan to retire to a beach and spend time with the family, you may only need 30%.
Only you will know your correct spending outcome. It is important to determine how much you plan to actually spend in retirement to forecast your financial health.
The Trinity Study was derived from a paper written by several Trinity College finance professors. One of the main aspects of this study was to determine the safest withdrawal rate from a retirement account. The study proposes that one should be able to withdraw 4% of your portfolio per year and have it last the rest of your life.
Yes, 4%. The researchers confirmed this figure when they studied a period from 1925 to 1995. At a 4% withdrawal rate, it was very unlikely to exhaust an entire portfolio.
If you are unsure of your future spending, calculate your current yearly spending. Then, multiply that figure by 25 in order to predict your financial needs. If you spent $40,000 total for the year, you will potentially need approximately $1 million for retirement if your expenses remain consistent.
Pillar #4 – Create a Spending Plan
The word “budget” tends to intimidate people. Who wants to feel limited in their spending? Plus, you may be overwhelmed to learn your true spending tendencies. However, knowing exactly how you spend is critical to achieving financial independence.
This means that YOU have control over how you spend your money.
If you want to spend $1,000 at restaurants every month, you can, as long as you have enough money at the end of the month to cover all of your other bills. The choice is yours. Enjoy spending your hard-earned money — just know where it is going with a Spending Plan.
The best place to start is Personal Capital to figure out how much you currently spend.
Once you have an idea of your spending, I prefer the Zero-Based Spending Plan because it is very simple to use. Click here to see an example. Each month, every dollar that you make should fit into a category of your designation. If you have a paycheck that does not fluctuate, this means at the end of the month, you should not have any leftover money.
Most importantly, if you are married or preparing for marriage, I highly encourage that both of you get involved with the Spending Plan conversation. I can’t emphasize this enough. Communicate. The number one thing couples fight about is money. Breakdown these barriers, and start the conversation today.
Pillar #5 – Pay Off Debt
What would your life be like if you held no debt? I’m not talking about just paying off short-term debt like credit cards, medical bills, or student loans. I’m talking about all your debt, including your mortgage. What would that freedom allow you do?
For me, freedom from debt allows the release into dreaming bigger and living life to the fullest. It also provides a release from financial stress and worry.
Debt Elimination
There are two main ways of knocking out debt.
Debt Snowball
The Debt Snowball involves listing out all your debts from lowest balance to highest balance. You continue to make the minimum payments for all of your debt and also apply any extra money towards the smallest debt. You continue to do this until you have paid off the smallest debt.
The freed up money from the extinguished balance can then be applied to the next smallest debt and so on, until you have paid off all of your debt.
Psychology shows that most people are more likely to follow through with the Debt Snowball plan due to the nature of “quick wins”. Each time you see an account paid off in full, the feeling of accomplishment boosts your self-esteem. Then, you are empowered to take the next step upward towards paying off the next debt. That motivation propels you to follow through with these plans as each step brings you closer to the top.
Debt Avalanche (Interest Rate Prioritization)
The Debt Avalanche starts with tackling the debts with the highest interest rates first. Psychology aside, this is the preferred method of debt elimination. However, it does take some discipline and diligence.
Once you pay off the debt with the highest interest rate, you then apply the extra cash to the debt with the next highest interest rate until you have paid off all of your debt. Much like an elevator, you drop from floor to floor fairly rapidly.
Which to Choose?
There are pros and cons to each of these methods. The first method involves the psychological benefit of small wins that a debtor gains from paying off each debt.
While it may take longer to pay off all of the debt, the “wins” experienced in the Debt Snowball may help you to stay motivated to continue paying off other debts. The second method should help you pay off the debt faster since you are paying less in interest. However, some people become discouraged when they do not see their balance go down as fast. Determining which method would be most effective is really an individual choice.
However, just as a caveat, in a 2012 study by Northwestern’s Kellogg School of Management, researchers found that “consumers who tackle small balances first were likelier to eliminate their overall debt”.
Pillar #6 – Save 3-6 Months Worth of Expenses
Why 3-6 months worth of expenses?
According the latest from the Bureau of Labor Statistics, someone who is currently unemployed on average, requires over 3 months to find work.
In 2010, however, after the Great Recession hit and the US economy took time to slowly recover, the average unemployed individual remained unemployed for about 25.2 weeks, or almost 6 months.
Pillar #7 – Safeguard with Proper Insurances and Estate Planning
Insurance can be difficult to understand. There is so much disinformation out there. At one point, I felt confused and overwhelmed by all the insurance options available.
I’ll be the first to admit that insurance is not nearly as much fun to talk about as making money in the stock market or optimizing finances. However, it is still very important. What is worse than making a ton of money, only to lose it by not being properly protected?
You can check out my “Comprehensive Guide to Your Insurance Needs” here.
Pillar #8 – Invest 20% of Pre-tax Income
Why 20% of your pre-tax income?
Studies have shown that the more money you save for retirement, the better off that you will be. That sounds like a no-brainer. However, the hard part is the execution.
That’s why experts suggest spending 50% of your income towards necessities, 30% towards discretionary spending, and the remaining 20% of your income towards investments. This is an easy-to-follow 50/30/20 rule of thumb.
Even if 20% is too ambitious for you at the moment, if you are committed to following the 12 Pillars of Reaching FIRE, eventually, you will be able to achieve it.
Pillar #9 – Save for Children’s Education
One of the best ways to save for your children’s education is through a 529 plan, which allows your investment to grow tax-free. You pay no income tax as your contributions grow and no income tax when you use the funds for the beneficiary’s qualified higher education expenses. Beneficiary expenses include tuition, fees, books, supplies, and equipment required for study at any accredited college, university, or vocational school.
Pillar #10 – Pay Off Mortgage
Though it felt like an eternity at times, I paid off my mortgage in 7.5 years, three months after my wife and I got married. This meant that when my wife and I married, my wife essentially moved into a debt-free home.
Without a mortgage, I felt emboldened to dive into new roles at work that I was terrified to take. Here’s the crazy part– I excelled. I had no fear, so I implemented changes to the job that I thought were necessary. Even crazier, I received a promotion and found myself in more roles that were out of my comfort zone. My career trajectory has completely changed, all because I paid off my mortgage and in return became fearless in the workplace.
So how do you it?
Easily. Make extra payments each month to the principal. It’s important to not just send in the payment to the bank without specifying this. Otherwise, they make add it to your principal and interest, which does not help you pay it off nearly as fast.
Pillar #11 – Super Savings
Without any debt, you can save as much or as little as you want. The light is at the end of the tunnel, and the only person holding you back from FIRE is you at this point.
Since my wife and I have paid off all debt, we are now able to save over 65% of our take-home pay each year. In turn, we live off of just 35%. This includes the tithes that we make on a monthly basis. This has been the right balance for our family.
Pillar #12 – Pursue Your Passion and Enjoy the Benefits of Financial Freedom
This is the end goal of your financial journey. Once you complete Pillars #1-11, you can fully pursue your passions and live your life in full financial freedom.
What a great feeling. At any given opportunity, you have the ability to pivot towards something the Lord places on your heart, and there is nothing to hold you back.
I encourage you to pray along the way what it is that the Lord wants you to pursue. I also encourage you to be flexible so that He can mold and use you for the greatest impact. At that point, you will enjoy the immense benefits of reaching FIRE.
Paying off your house so early–what a great wedding present for your wife! You’re right–your expenses must have been super low afterwards and allow you to feel like your job wasn’t super important. We have a fifteen year mortgage and ours isn’t near paid off, but it feels great to pay it down faster than a 30-year.
When you do pay off your house, if you’re like me it will be a huge weight off your shoulders. Keep up the awesome work!!!
I do like the layout – sounds great. Does your church also run FPU classes and this is sort of a supplemental course?
Brad – MaximizeYourMoney.com recently posted…Don’t Make These 401k Mistakes
The course is not meant to be a supplemental but an all encompassing course sorta like FPU but with some small differences 🙂
How was the reaction from the students in your class at your church?
The feedback was really positive. I am hoping that I can teach it again in January. But we’ll see if I get the green light 🙂
These 12 pillars are great to follow regardless if you are religious or not. I would want to add that to fast track your savings or FIRE plan there are often free money to boost your savings. Most of my motivation to save comes from getting free money.
One of the most important pillars to reaching FIRE is to pay off debt. When you are not wasting money on consumer debts, you can put those money to work to earn more money for yourself. Compounding that with free money and a high saving rate, FIRE is very achievable.
Leo T. Ly @ isaved5k.com recently posted…The Best Way To Get Out Of Debt
Thanks for stopping by Leo!!! I definitely agree that when you do not have debt holding you back that it’s a lot easier to super charge your savings. I am definitely amazed to look at how my accounts have grown since I paid off my debt 🙂
These are great pillars, I really like the framework.
Mrs. Adventure Rich recently posted…Furry Additions to the Adventure Rich Household
Thanks for stopping by!!! I’m glad you enjoyed it 🙂
Great counsel, esp. for people just starting down the path. I’m curious what feedback / follow-up questions folks had – was this well received, or did it sound too onerous for some?
Paul recently posted…Personal Finance Basics (and Achieving Your Goal In Life)
I broke the class up into five weeks. So it was smaller bites along the way. I left one hour for lecture and then 30 minutes to ask any questions that they had along the way. It was pretty personalized and I received a ton of great feedback.
By structuring it as Pillars to cater to the church audience is a great idea! I hope everyone in the class uses these pillars to achieve FIRE. I’d vote for the interest prioritization for debt pay off more so, just because of the savings involved, but I understand the psychological aspect of the snowball method too.
SMM recently posted…Stock Market Is Great And I’m Nervous
Thanks for stopping by SMM!!! I let everyone in class decide what makes most sense for them. But I share with them the pros and cons of both 🙂
Congrats on your work as a teacher. As one myself, I find it’s one thing to know something, but it takes an entirely higher level of understanding to convey and teach your knowledge to someone else. It is similar to authoring a blog on personal finance. One’s writing is a form of teaching and education. By teaching and writing, you raise your own level of understanding and competence. Tom
Tom @ Dividends Diversify recently posted…Turnabout is Fair Play! Let The Companies Do The Work.
I definitely agree Tom!!! I thought I knew certain material but having to explain it made me go back and re-educate myself in certain areas. It’s definitely a completely different ballgame 🙂
This is great. I love the idea of this course and of allowing people to follow the pillars while still tailoring them to their personal needs and wishes. I hope a lot of people in the course are making big financial improvements as a result of it! I often think this would be something my husband and I would really enjoy doing–developing and teaching personal finance. We get pretty fired up talking personal finance and financial independence! Maybe it would be good in a class setting where people signed up for it, rather than us just trying to convince all our friends and family to see the light, ha!
I was surprised at the amount of interest and we kept it very small for the pilot. Hopefully I can see how much interest there is if we lift the cap on the numbers 🙂
It is great that you are now teaching the members of your church about personal finance. That is a great example of service work. I like how you linked faith and finance in your pillars. Nice job!
Thanks Dave!!! It was a big undertaking but I am really happy with the end results of the class 🙂
These are really good pillars. They are general enough that you can personalize them to your situation. But they are specific enough that if you follow them your financial situation will definitely improve. Your bible references are interesting too, and very relevant . I don’t know if I personally would take a class that was so religious, but I can see how it was appropriate for your church. And it sounds like it went well!
Beetsandlilacs recently posted…The Best Financial Decision I Ever Made
Thanks for stopping by Beetsandlilacs!!! I know the course probably isn’t for everyone but it’s got core principles that hopefully can be applied to all financial situations 🙂
Have you thought about doing a continuing education course on this? You might have to modify the first 2 items for a general audience, but it would be good to do so.
Jason recently posted…A Strategy for Debt Fatigue
That would be wonderful Jason!!! I have to admit that I don’t know where to begin when it comes to a continuing education course but I’d love to learn. Any insight?
Great to see the faith based angle on this. The whole article can be applied to just about everyone, regardless of background as well.
Believe it or not, I actually talked to people at my church about trying to run a financial course as well. We’ve tossed around a few ideas, but it’d be great to get your thoughts on how your course went. Let me know if you’d be up for chatting more! HUGE value in combining scripture with practical saving/investing.
Hi Shaun!!! Please reach out, I’d be more than happy to share with you on everything that I did. I have an instructor guide, class guide along with chapters for the class to read through afterwards!!!
Perfect, thanks so much! And sorry for the delay! I’ll reach out using your contact form, and it’d be great to check out the material. I’ve raised it with them, and it’d be exciting to host something. Thanks again!
Nicely done!! I love that you are sharing these concepts within your church and helping others to achieve their freedom. The condemning tone you spoke about is why many people are turned off. You’ve done a great job putting this together in a way that can turn the light back on. Would love to hear some of their success stories as the program spreads. 🙂
Miss Mazuma recently posted…Early Retirement: Roadblocks & Contemplations
Thanks Miss Mazuma!!! I have received a lot of positive verbal feedback. Hopefully we can run the class again and I can get some written feedback as well 🙂
Love these 12 pillars MSM. Hopefully the people in your class will be inspired to reach their financial goals after you pass your knowledge to them.
Kris recently posted…Getting Ready for a Natural Disaster
I really hope that they still engaged on the pillars. It was definitely fun to teach it 🙂
Thank you for sharing this and thank you for including the first two pillars. It is amazing how full the Bible is of money tips! I would love to share this class with my Sunday School class. Thanks again for sharing!
Thanks for stopping by!!! Feel free to share away 🙂 I have a class guide and instructor guide as well that I’m hoping to share down the line!!!
I’m with Laurie@threeyear. Having a paid-off house is a great way to start a marriage. Bravo. And your 12 pillars ain’t so bad either. Thanks for sharing this sage advice.
Thanks for stopping by Mr. Groovy!!! Glad you enjoyed the 12 pillars. Hopefully I can get it to catch on 🙂
I bet Dave Ramsey’s ears are ringing 🙂
Hahahaha!!!
Not at all religious, but I’m a Christian. I really think there are more solid financial principles and wisdom in the bible than any Kiyosaki book can offer.
Menard Solve recently posted…What Rihanna can teach you about liability insurance
Hahahaha great point!!! I definitely think there is a ton of wisdom from the Bible more so than what some of the so-called experts can offer 🙂
Good stuff. If you want a great source for the debt snowball, I spent countless hours creating an Excel spreadsheet that can show you when each debt will be paid off and when you’ll get completely out of debt.
Share the post in your article if you like: http://lifeandmyfinances.com/2016/12/how-the-debt-snowball-really-works-free-tool-included/
Thanks for sharing Derek!!! I’ll definitely have to take a look and see 🙂
That was a great common-sense article. Like you said – easier to know than to execute. I’ve also found that a great way to save for retirement – once you get your mortgage paid off, is to invest in income property. Much better ROI than a savings account, and when you do the math – with an appropriate down payment – the tenants pay the mortgage.
Worked for me.
Thanks for sharing Bo!!! I’ve thought about income properties but haven’t found any properties that fit into the 1% rule where I live.
I’m loving where your heart is. As a personal finance blogger myself, I realize that we are all in a different place. There was a point in my life when I was nearly evicted (and I was a single Mom at the time). I also found behavior patterns (car trading) that were a problem and made the decision to change my life going forward.
Thanks for sharing Melissa!!! I would love to make a difference in peoples lives and break the cycles of debt 🙂
Such good information! We’re working on these ourselves, but I appreciate your priorities in this list 🙂
Glad you enjoyed the list!!!
Good tips here!
Glad you enjoyed the tips!!!
Nice read. Prioritizations of expenses and proper allocation of funds are extremely important. The mantra of managing personal finance is to do small things correctly and sensibly
Thanks for stopping by!!! Small things over time definitely add up, especially when you do it right 🙂
AMEN! I agree with this article 100%, I wouldn’t omit a single pillar from a sound financial plan. Pay your first-fruits to Him….
I totally agree with you Mr. FIRE!!! When you pay Him first the rest fall into place 🙂