Welcome to How Do They Afford That, the podcast that peaks into the financial lives of everyday Australians.

I'm Michael Thompson.

I'm an author and the co host of the business news podcast Fear and Greed.

As always, I'm in the studio with Canna Campbell, financial planner and founder of Sugar Mama TV, the financial literacy platform that you will find on YouTube and Instagram and podcasts like this one and books and threads and TikTok and everywhere.

Hello, Canna, good morning, how are you.

I am excited, always excited.

I know, I get excited about this podcast because I always learn something.

And today we are talking about a topic that we have discussed in the past, but we're going to a slightly different place with it today.

This is about the Fire movement, financial independence, retire early.

That's what Fire stands for.

And I'll get you to give us a bit of a fire one oh one in a moment, But the real focus of today's so I suppose it's kind of like the evolution of Fire, that it's going beyond that original definition to more of an emphasis on financial independence and less about the retiring early.

Yeah, that retiring earlier has become.

Yes, it's still a goal for a lot of people.

But the key to this is financial independence, yes, and the freedom to do other stuff as well, and part of that might actually be working and not just having to retire.

So let's start with the basics, shall we fire?

What does it mean beyond just financial independence retire early?

Look?

Look at its heart has never really been about quitting work at age thirty five and you know, going fishing for the rest of your life or sitting sipping on cocktails on a cruise ship for the rest of your life.

It does actually sound quite good, it does it?

Actually, I now thinking it sounds quite a feeling, but it's really Now, this is what it's evolved into.

Is about having options and about choice and about flexibility and feeling empowered to live a life on your own terms.

And you know, reaching a point where money no longer controls you or your decisions because you control them yourself.

Okay, there are different types of fire.

And I didn't realize this.

I thought that fire was just just one one, one big kind of community.

And it's a mindset and it has been a big thing that has developed over the last say thirty years, but it has actually broken up into some little sub categories of fire.

Four of them lean fire.

Let's start with lean that's a good place to start.

Lean fire, lean fire.

So this is like very much a minimalist lifestyle with you know, really cutting your expenses as much as you possibly can, and you you reach that financial independence by dramatically, you know, cutting costs, essentially living off the scent of an oily rag.

Okay, yeah, I mean your fate.

You're putting a face and I agree, like it's it's it's a tough one.

But but there are a lot of people who subscribe to this.

Well.

It also feels like that is the almost the common fire, like that when you see news stories about people following the fire religion, almost very very strictly, it is usually about people who are doing lean fire because they are talking about just how much they have cut their living expenses and the fact that they never go out and they the same thing every day and they're working three jobs and all of this, and it's like, okay, you have taken this to the absolute extreme, which is why there is perhaps a media interest in what they're doing.

So that's lean fire, fat fire.

I like the sound of this.

So this is a much more comfortable, like higher cost lifestyle.

So you still reach financial independence, but you're not cutting everything to the absolute bone.

It's really about building a luxurious lifestyle retirement.

Okay, that's fat fire.

Barista fire now just feels like plucking names out.

I don't know how they got the name borwister.

I couldn't figure that one out.

But this is when you've reached like partial financial independence, so you kind of at the best of both worlds.

You supplement your income with you know, very easy, low stress, flexible or passion based work.

You know, for example, you might earn forty thousand dollars off your investments, and then you'll earn forty thousand dollars, say working you know, a part time job or working on your own business.

Or as a barista or as a barrister.

But that's assuming the barwister's work part time, I think.

But I think that's probably where the name came from, right that you have the freedom to just go, you know what, I'm just going to go and make coffees.

Make coffees.

But that's a full time job.

Not necessarily.

I mean, if you're a part.

Time saping generalization.

I don't like I didn't make the generalization, and I feel like the Brewster title does it anyway.

Okay, if we shouldn't get hung up on the name, because that is quite an interesting model of the partial of independence.

Had enough freedom to go and do some other things in supplement your income with other with other work, fun work, or work that you choose to do, right exactly.

The last one is coast fire.

So this is where you do like the heavy lifting first, So you invest as much as you possibly can, as early as possible in life, so that your existing investments that you've put aside and built and committed to will can kind of bubble and grow obviously with compounding growth over time, and that will then fund your retirement on their own.

Okay, So you then in the meantime can just kind of sit back because you've done all the hard work and let your investments grow and then you just need to focus on living off your income through your normal work in the meantime.

Is that kind of closed off to a lot of people just because you have to get going early on that, Like if you're not doing that in your say twenties and thirties, if you're trying to embrace that in your forties, you are going to have to go really really hard in order to do that quite quickly.

Well, you're gonna have to be able of a lean fire movement then, because you're gonna have to live off the center of an oither right, stop all expenses and go aggressively.

But it is never too late.

So then you're making And yet another kind of cross breed and subcategory of fires came.

Ask you a perhaps a personal question, depending on how much you're willing to divulge here, is there a particular brand of fire that you identify with?

Look, with fire, there is no one size fits all.

You've got to think of fire as a bit of a spectrum, and people can and do move freely between the different types as their life naturally evolves.

So for me, what I identify the most with is probably previously has been coast.

So I started investing at a young age.

I've been fairly aggressive.

I've used lots of different sophisticated investment strategies like such as the recycling.

So I have definitely established a good foothold in building up the investments and building up the passive income.

I am so I've done that hard work.

However, since having children, that's changed a different dynamic and I'm now sort of reassessed the strategy and it's more about Barista, so not having to work aggressively at full speed ahead, being able to have that flexibility of working eventually part time and eventually retiring.

So I would say I'm a hybrid between Coast and.

Barista and getting to just do say the podcast that you really really enjoy being this.

I just want to work with you all the time, Michael.

You know, it's just so much fun.

So I was just trying to extract that one promise on tape.

That's good.

We have talked in the past about an issue that you have with the Fire movement, and it's around this concept of the fire number itself and the fact that it's almost a little too simplistic, this target that you're supposed to reach, because it doesn't take into account so much stuff, right, and.

I've seen it backfire with fire members as well.

Backfiring with fire members.

It's just go on very quickly in say thirty seconds, or let's just explain what the fire number actually is and then we can get into your problems with it.

So the fire number is a number that you work towards, and a lot of people in the fire community have this number of twenty five.

So say, for example, you need forty thousand dollars a year, you multiply that number by twenty five, and it would tell you that you need to build a million dollars worth of investments or in savings to be able to be or have financial independence.

Okay, so that's the twenty five yes rule.

Yeah, okay, that doesn't work though necessarily in real life, because that is just a static figure.

Yes.

So there are a lot of dangerous assumptions with this.

Did I just make it an assumption noice?

Oh of course I did, go on, please.

So this is assuming it in a perfect world, and in a perfect world this does work.

But we don't live in a perfect world, and you know, life doesn't follow spreadsheets.

So it's assuming that you are going to have, you know, a stable return that you know markets won't fluctuate, we won't have corrections and pullbacks.

That doesn't happen.

It also assumes low inflation, so you're assuming you need forty thousand dollars a year.

We've all seen over the last couple of years with the rising cost of living in inflation that you know, forty thousand dollars does not buy what it used to do, say four years ago, or even three years ago, two years ago.

There's also the issues of you know, being a flat income, so you're assuming that you're only going to need, for example, forty thousand dollars per annum.

That's it.

But what happens if you actually need lump sums, and what if you don't get the returns that you get, for example, your investment only provided a return of say two percent of four percent, you're going to start eating into that capital.

It's also going to assume that you have no changes in your lifestyle, so for example, what if you end up starting to have a family, You know, forty thousand dollars may actually not be enough for you and your family.

And it also it doesn't take into consideration, you know, those unexpected costs medical, dental, lifestyle changes, and even like tax, because you've got to pay tax on that forty thousand dollars a year depending on which country you live, So it can very easily come undone.

And I have had conversations with people with the fire community.

You've got to that point went great, we are successfully you know, fire winners, and they've either had to go back to work, they've had to start investing again, they've had to completely change their strategy, or they've had to start all over again because it just spiraled and the money quickly evaporated.

All right.

So that's then the problem with the fire number and this twenty five times rule that is so static and doesn't take into account inflation and other expenses that may crop up and various other things that may impact the cost of living.

What does financial independence look like then?

To you?

True financial independence?

What is that?

So it's very much passive income based, and this is the Sugar Mama philosophy is build enough passive income and growing passive income that more than covers your living expenses, so that even if you cannot get out of bed, there's money still deposited into your bank account through an income source.

So you are never reliant on physically putting on a suit, sitting in front of a computer screen, being in front of clients, being in a podcast.

You go, we established earlier that is part of your lifelong dream, and so we'll just take that as just something that you would still choose to do even if you were entirely financially independent.

But think about it this way.

If you if I paid you, pretend I am your investment portfolio and I am going to put into your bank account eight thousand dollars every single month.

You don't have to necessarily work five days a week.

You have that choice now to cut down part time or could stop completely depending on your living expenses.

And this is the thing.

When it's a passive income source focused strategy and goal, it's indefinite.

It's not going to run out.

And this is really important.

Okay, we're going to take a quick break, and then I want to get a little bit more into the nuts and bolts of that how you actually build that, a little bit on how you figure out what your target should be if we're not using that fire number and that twenty five times rule, because it's good to have something to aim towards, right, and so what you actually figure out and what number is going to be more practical in real terms for you to get financial independence.

Back in a moment, can we are talking about fire financial independence retire early and why it has evolved more towards a focus on financial independence and less on retire firing early.

Is there a misconception around that?

Do you think that everybody just hates their jobs and everybody just wants to quit, because really a lot of people get a reasonable amount of satisfaction and fulfillment out of working.

Yes, I think it's a huge misconception where people, Yeah, it's think that fire was born out of that you know, defining moment where you quit your job because ah, I've secretly, you know, been building up this amazing financial empire and I can now, you know, I'm more successful than my boss that I hate so much, and I can quit and walk out the door with my head up high.

I think there's a huge misconception around that.

As you said, most people really enjoy their work like me, and it gives them a great structure.

It gives them purpose, which I think is really important for your own mental health.

You're constantly learning, gaining more experience, adding more value.

You're a part of a community, which is, you know, one of the important pillars of overall health and well being.

And the more we work, the more capacity that we are building for everyone around us.

So I think that is definitely a misconception.

It really is as I said at the beginning of this is about bringing back that choice and that flexibility and also giving us.

Time financial independence.

Then how do we do it, how do we build towards it?

And is the starting point actually figuring out the end point?

Figuring out what you're aiming towards.

If it's not that fire number of twenty five times forty thousand dollars or whatever.

So what you want to do is build up enough passive income that covers your living expenses.

So where does that money come from?

Well, it could come from dividends from a share portfolio.

It could come from rental income from an investment property portfolio.

If you own a business, you could be earning some you know, be entitled to some of those profits.

You might be earning interest of a bank account.

You might be or earning some royalties if you sell books, you've written songs or movie rights.

So it can come from a variety of different sources, and it involves also it's a bit of a moving piece.

It's not as simplistic as just building up the income.

It's also about building the stability to allow that income to actually work for you, because there's no point building up say one hundred thousand dollars worth a passive income if you've got you know, ninety nine thousand dollars worth of interest PINI interest or principle and interest repayments to fund at the same time.

So to build that foundation of stability.

It's also about having emergency money and the right amount of emergency money so this never comes unstuck and spirals out of control.

And also that you're not having to dip into your investments in order to.

Because you could crystallize massive losses.

Is particularly if.

It's a bad time suddenly you've got to find twenty thousand dollars for kind of medical bills, You're having to go and liquidate a whole lot of assets in order to do that.

Then, I mean, and.

This is where you know, some of the people I've spoken to, they've had to do that, but they've had to also been forced to crystallize at a really bad time in the market.

So they undid years and years of hard work and sacrifice because they weren't properly prepared.

They didn't build this foundation for their retirement strategy and their financial freedom strategy.

And also it's about having a manageable debt or Ideally what most financial plans, including myself, was, ideally you go into retirement or without any personal debt.

You know, so the mortgage is paid off.

You might have some investment debt if it's cash flow positive that depending on your situation, that might be all right, but definitely no personal debt at all, and still having those really clearly defined goals and still knowing how to stick to your budget.

You know, you've just because you've got all this passive income coming and you've got to know how to manage that money and to stick to that income so you don't spend it all in one month or in a couple of months, got to ration it out throughout the year.

So there still involves a huge amount of financial knowledge as well as a huge amount of understanding about your often your own money story and mindset.

Okay, as part of that, though, then how does it fit in with say, family life, long term goals like the mortgage, like kids education, Because there is a lot of investing, particularly if you were doing say the coast fire model, where you are investing a lot quite early on, or you're doing the lean fire model where you're cutting all of these other expenses.

How do you kind of balance those with real life with kids, education, with trying to pay off a mortgage and other things while also trying to build up that investment portfolio.

This is where fire meets reality.

You know, as I'm saying, goes, you can have it all, but not necessarily all at the same time.

A thing with fire is for it to work for you and to actually create financial success in your life.

It needs to adapt to your lifestyle, not the other way around.

Okay, so what I personally, For example, I explained I you know, I was out of the coast and now I'm more of us a barista.

I've had to slow down, you know, I've got different expenses, Like I cannot pay down debt and invest and contribute to super at the same speed before I compared to what I had before children.

So it's about maybe adjusting the deadline.

It's perhaps about taking a completely different, more sustainable pace.

It may be about doing things in bursts and spurs.

Bursts and spurts.

So for example, you might go all right, at the beginning of this year, this year is going to be all about investing aggressively, and then next year we'll take it back a bit.

We'll just coast along.

We'll just do what we can afford to here and there and not be as aggressive.

So and you might say, well, we can afford to do that because we're both back at work before we have another family member.

So you just adapting the strategies to what allows a healthy sense of balance and at all times upholds that importance of stability and security for the whole and time hire family.

So really it's about adapting and customizing your strategy.

I don't want to we are approaching the end of the episode and I don't want to finish things on a downer.

But what mistakes have you seen people make when they go after this too hard?

You mentioned kind of going aggressively at times when it suits you.

But if you see people just going for this with this goal of financial independence or perhaps earlier retirements, they go at it, can it just fall apart?

Definitely?

And I've seen it fall apart more often than not.

Can I just say that it's not about being a downer, It's about being financially wise and informed.

Don't think about this as being negative.

I guess let use this episode to help avoid the same mistakes that other people have met.

I'm like a financial owl.

Very wise, we.

Should get an output on our podcast title.

I think I can't believe I just hooted into the microphone.

But look the mistakes I see to get I know, I can't believe you did too, am.

I'm like farm animals here.

But to get back to our point, I'm sure very important point, because this is where I want people listening to go all right, this is where other people go wrong.

I now know what to look for and what not to do, so going way too aggressively and actually burning themselves out.

Don't make me laugh, Michael, you distract me.

No, No, I was just thinking about the fact that I'm quite sure an owl is not a farm animal that.

You just not.

But I only know how to do farm animals.

I've never done an alb.

What is your best farm animal?

Thoise, Eh, I love.

Up until ten seconds ago, you had so much credibility.

I actually have a like smakeas board of farmyard animals because I do them to my kids all the time.

Please, we are trying to do a serious podcast here.

I don't know.

I won't like, I won't bring out the farm yards.

We'll save Old McDonald had a farm when we stop recording.

But all right, please can we stick to this, Michael, you're distracting me.

I need this is important.

I'm getting fired up here, So all right?

Getting to going to aggressive cutting your budget way too hard?

Is it a recipe of disaster?

You will burn yourself out.

Second is underestimating those real life costs.

Think about inflation, think about tax think about the change in taxes as well.

Nothing is like set as being static forever.

Things change and evolve over time.

You've got to be ahead of the game.

The other thing I see is people when it backfires, is those people who are obsessed over that fire figure, like for example, that one million dollars based on that twenty five number, instead of actually looking at what income do you really need?

You know, do you need forty thousand dollars a year, or perhaps you actually need because you look at your budget eighty thousand dollars a year, Like be realistic.

And I also see people taking really aggressive risks to try and accelerate the timeframe, like to get there sooner.

Ah, like going in on risky investments.

Quick schemes, or you know, taking something that is just putting all their eggs in one basket, which is another point, not properly diversifying.

So you know, I saw an example where someone only bought what one property, And don't get me wrong, that's a massive achievement within itself, but that one property has had lots and lots of problems and couldn't actually be rented at oh dear, and they had huge expenses incurred with that particular cost, so backfired.

And then of course, you know, neglecting what fire is really about.

It said it's about choice, about flexibility, about time.

You know, they get so obsessed and consumed by fire that they forget about their lifestyle right now, and their relationships suffer and their health suffers, and you know they don't have that emergency money to support them and back them up.

And you know I don't.

I'm part of the fire movement, but I think it needs to be done sensibly, wisely, and you know, you've got to keep it real.

We are entirely out of time.

But where does a financial planner fit into this?

Is this is that the first that potentially to talk to someone professionally, and if you walk in to a meeting with a with a financial planner and say, hey, I want to do fire, are they just going to go, oh, here's another one.

Know that this is what financial planners do.

And every single person that's told me their bad fire story, I think, why didn't you go and see a financial planner.

They would have stopped you.

They would have made you aware of this, they would have recommended something to help reduce these risks.

They would have better prepared you.

They would have helped you evolve the strategy because you know, as a financial planner you review your client strategy every year, if not twice a year, so they would know in advance, oh, you're going to have a family.

We cannot be boring to invest in doing a debt recycling strategies aggressively at that we need to pay some debt down, or we need to press pause on that, or we need to make these changes or shift the strategy.

Like this is what a financial planner does.

They help create that, you know, financial independence with the goal of being able to have the choice to retire early.

Okay, we've covered so much today.

It is but I mean, fire is such a big topic we could do.

I could talk all day.

Yeah, if anyone wanted to listen to you talk all day or watch you talk all day.

Where do they find you online?

Find me online?

But also you know sugarmums.

Fireplay is all about what's called fireplay.

It's all about that financial independence, okay.

And you can hear me every day with Sean Aylmer on Fear and Greed, which is business news you can use.

Thank you for listening to how do they afford that?

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