Podcast 241: FIRE and the 752-153 Rule

If you have a weekly expense you can multiply it by 752 to get the 10 year cost of that expense. If you have a monthly expense you can multiply it by 153 to get there too. We explain how these numbers affect your ability to retire on time or even early.

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Show Transcription:

00:05 Hey everybody. Welcome back to another episode of RentPrep for landlords. This is episode number 241, and in this episode I’m going to be talking about an acronym called fire. If you’re not familiar with it, we’ll be talking about two really important numbers, 173 and 752 and why you should know this quick math tip using those numbers and also be talking about why crypto has been one of the best investments I’ve personally ever made.

00:37 1,2,3,4 ya ya ya…. Welcome to the RentPrep for landlords podcast. And now your host, Steven White and Eric Worral.

00:37 Oh, right. So this episode you just send me your host, Eric Worral. Uh, normally I try and get together with Steve on these, but I’m actually recording this one from the Home Office today. Uh, because, uh, I’ve got a stomach bug that has been running around. And let me tell you, that was a fun one. Uh, I’m a recuperated, but uh, the last, about 30 hours of my life I’ve had a better 30 hours, but it’s a good reminder to, uh, appreciate your health when you have it, you know, sometimes you can take that for granted. So I’ll be glad if you don’t have the stomach bug right now because pretty much anything is better than that.

01:11 So in this episode I wanted to talk about is kind of going over the last six months of this journey that I’ve kind of been going on. And uh, and I know Steve always laughs at me because I get shiny object syndrome where I see something and I’m like, oh, that’s interesting. And then I just read up on it and get really into it. Well, cryptocurrency this time last year, that was all the rage, you know, the markets were crazy, the returns were crazy. If you’re not familiar, it’s just a blockchain technology, which is just essentially this encrypted way of being able to exchange assets and information that’s, you know, impossible to hack and they created all these money markets around it.

01:50 So you can clearly see that. I don’t really know what I’m talking about whether it. But basically you could buy crypto currencies just like you could buy a currencies from the Canadian dollar, the Brazilian dollar, whatever the equivalent of that is. So I got kind of swept up into this because I saw the returns and kind of put a little bit of money in Crypto and then got all excited about it and at one point the returns were amazing and I was like, this is incredible. I remember at one point thinking I was going to pay off my mortgage with like a few thousand dollars of cryptocurrency based on the returns I was getting. Turns out I was incorrect. Uh, I definitely was not a good investment, but while I was kind of going through this and reading up on it a bunch, I was in a, um, I think it was a reddit thread, uh, maybe I’m personal finance or something like that. And if somebody who had posted about an article from this guy called Mr money mustache, and it was basically, I think it was titled, why you’re an idiot if you invest in cryptocurrency. So I was like, wow, I’d like to be told why I’m an idiot. Why don’t I check this out, in the article one of the things that stood out to me was this tulip bulb craze. So, I don’t remember the year, this is a long time ago, but uh, maybe, you know, $1,400 or something. I’m just kind of shooting from the hip. But in the Netherlands, at one point a tulip bulbs became this huge craze to the point that owning tulip bulbs was like better than owning money. And like they created these different types of tulips based on like, you know, I don’t know, they crossbreed I don’t understand it basically. But maybe you’ve seen photos before, how there’s crazy tulips in Netherlands now. Well, back in the day they didn’t have that. So there was a very limited supply of these and people started valuing them extreme amounts. So people were investing in Tulips and by the end of this tulip bulb craze, you know, you can probably see the writing on the wall. It crashed because basically they’re not worth a lot and they figured out how you can grow them in mass production. And as soon as that happens, it floods the market to a tulips. And now people who had, you know, pulling out with the equivalent of a second mortgage on their home, uh, realize that they owned a bunch of tulips that are worthless and, in some respects you can say that that’s happened a little bit with cryptocurrency. The book is still out on it, uh, but the, the markets have definitely simmered down.

04:12 And according to this author on Mr Money, Mustache blog, he said that, you know, you’re an idiot if you’re investing in this. So I started consuming this guy’s content like crazy about, I don’t know, maybe six months ago. And one of the acronyms you see coming up a lot, it’s called fire. So if you’re not familiar with that stands for is financial independence, retire early. So it’s Kinda two separate parts because it’s not just about retiring early. Uh, some people are, you know, they love what they do. They have no plans of ever retiring early, but they want the financial independence. So what financial independence means is that you could live off of your investments. And this is a pretty common theme for landlords and real estate investors because you know, you realize you’re like, you know what, like my expenses are x a year. I think if I got this many rental properties in my market and I got this kind of margin on them that you have, I got to about 10 properties, 15 properties, whatever your numbers are that you could live off the rents. And we see this a lot in the facebook group, a run prep for landlords where people, you know, had been living a no job, they just take care of the rental properties and they manage your rental properties in the incomes from that come from the rent are what support them and their family, which is awesome. So the people that have done this essentially a fired through real estate on the Mr Money Mustache blog, he does it through index funds. Uh, so basically a lot of times, uh, the, the main ones you hear about or like vanguard, Schwab, Fidelity, uh, these are companies that offer these low cost index funds where your fees are very low and you can invest in entire markets, entire mutual funds for a very low price.

05:55 So getting back to the numbers that I quoted at the beginning of this podcast, 752 – 173, he has a blog post titled Getting Started Number three, eliminate short term itis, the bankruptcy disease, short term itis is not being able to see down the road and you know, not realizing that there’s a cost to everything. And you’ve probably heard this a lot where people will say, don’t buy a new car. You can get a car three years old and appreciation that first three years and blah blah blah blah blah. Well, what he’s talking about here is not just things like a car, but it’s that cup of coffee that you get every day or it’s that handbag or it’s this or that. So the number 752 a that is used as a quick rule of thumb to calculate a weekly expense if it was compounded over 10 years. So let’s say you spend $20 a week on coffee, $4 a day, this is an example. He goes, if you multiply that out, that is $15,040 in coffee just over 10 years. But if you actually do the math on that and you’re set, all right, $20 a week times 50, two times 10, that number is actually closer to 10,000. So where does that $5,000 difference come from between the two numbers that he has? Was the opportunity cost of what that money could have done? If you investing in, I think for our audience here, maybe you do invest in stock market, maybe you’re purely real estate. Some people blend like myself, others you know like to focus on one or the other. But when you’re making purchases, you want to think about what is the opportunity cost of that money and what it could do over time. His calculation with the 752 number, where you multiply a weekly expense by 752, it is assuming a compounded seven percent return if you’re investing in the stock market. So even though you might have saved 10,000 over those 10 years, your actual money that you would have made on that would be an additional $5,000. So you’re really looking at $15,000 and this is where our offense and defense kind of comes in. I just listened to a podcast on the choose a financial independence podcast and the reason it caught my attention is that they had a teacher who was talking about 457 plans. My wife’s in a school district, so I was interested in 457 plans. Yeah. The guy’s name is Ed from millionaireeducator.com. And he talked about offense versus defense. So when you’re saving for your retirement or the future, there’s really two ways to go about it offense is creating more income, creating more wealth and defense is reducing your tax liability and also reducing your expenses. So one of the ways that you can get on the defensive is you can take a look at your expenses and see if there’s some that might be able to, uh, be able to be dialed back a little bit and then you can use those heuristics or rules of thumb of 173 or 752. So if it’s a monthly expense, multiply it by 173, you’re going to have what the total cost of that monthly expense is in 10 years. If it’s a weekly expense, multiply it by 752 and you will have the total costs of that expense in 10 years. If you’re multiplying a weekly expense by 752. And again, that’s assuming seven percent returns. And you know, it doesn’t matter what those compounding seven percent returns or in the case Mr Money Mustache, it isn’t a stock market. But if you’re somebody who has a real estate investor and you know what your returns are, if they’re close to seven percent, those numbers will work out great for you.

09:36 But I just find this really interesting. I think I’m personally, for whatever reason, I’ve always been frugal even before I met my wife, I’m not to the point that, you know, we’re, you know, creating our own clothes or anything like that, but I’ve just always kind of had more of a frugal mindset on most things. Uh, but it was interesting. I’ve never heard that phrase before as far as the offense versus defense and maybe I’ll try and have add on the podcast because I thought he did a great job talking about tax liability and I think he would do that a lot better justice than I would just kind of winging it here on the podcast. But going back to fire, um, I thought it was really interesting and if it’s something that you guys had been, you know, listening to or wanting to get involved with, uh, and learn more about, I would definitely recommend Mr. money mustache. You can go to his blog and click on start here. Uh, the guys over at choose if you’re looking for a podcast, choose financial independence. Um, you can check them out. They’ve got a facebook group that does pretty well to, that has been very helpful and uh, yeah, just kind of curious what you guys think about it. A kind of talking about this a little bit more in the facebook group and kind of being more open about this journey, but it’s fun to think about and figure out what your numbers are and how you can get to the actual place you want to go. And I think that’s been something I’ve been trying to figure out more over the last 6 to 12 months is really dialing in and saying, okay, this is actually the number that I need to achieve if I want to achieve financial independence. And then once you understand that number you can kind of work backwards in. A lot of that comes through creating a budget and figuring out where your expenses are and you know, of course, saving money for emergencies and things of that nature. But uh, yeah, I just want to kind of let you guys know that this is going to be something that we’ll be talking about a little bit more in the future. Feel free to join the rent prep or landlords facebook group because I’ll be commenting on it in there and hopefully bring in some guests because frankly, selfishly, I’m just fascinated by it. So yeah, hopefully we’ll have some new guests on in the future about it. And uh, yeah. Until next week, take care.