Entering Coast Fire
A number of years ago I started to notice that my savings rate was slowing down.
Savings rate is the percentage of your pay you put into savings or investments.
It felt weird because I’ve been so heavily focused on trying to increase our savings for the years before hand. The rationale behind me slowing down on investing was that eventually, at some point, the money that I would put into savings, would do nothing to shift the needle.
New money being added to your Scrooge McDuck vault would be negligible.
Adding 10% → 1% → 0.1% → 0.01% → 0.001% into the vault.
At some point it makes no sense to invest any more and it makes sense to use it to live. At this point you could potentially be at
Coast fire.
Coast Fire is where the rate of growth and the time horizon work together to grow your wealth to be Financially Independent.
If you had a yearly spend of $70k. Multiply that by 25 to get a rough Financial Independence number.
$70,000 * 25 = $1,750,000.
My favorite formula, Future Value, is defined as:
If we rearrange the formula, we can work out when we should stop adding money to achieve Coast Fire.
So our present value is ~$161,518
For this hypothetical situation the person is 40 years old and they are planning to “retire” at 65. So 25 more working years. If they have $161,518 invested and they get average returns of 10% (Stock market average) they can stop stashing away new money into investments.
Hypothetically, one could now use that money that was earmarked for investing as living money to enhance quality of life. This goes without saying that this is predicated on your investment returns holding steady.
A prudent approach would be to take a bear case when planning for returns and target according to this. Me for example, if my historic average return is call it 30%, I might bring this down to 10% for safety.
After I realized I was spending money with high time preference (preferring to spend on today rather than tomorrow) I realized I was Coast Fire. Obviously once you hit this mark you can keep on contributing to investments - its up to you how you want to live.
After COVID and experiencing constraints on my life and day to day living, I shifted to living life with a high time preference. Going on more vacations and spending money on Toys.
The trick is not getting into a situation where you have too many resources when you are old but lack the health and mobility to enjoy them. My aim mid way through life is to rake back those end game numbers to mid life so that I have more control and freedom over my day to day life.
Note: Beyond Coast Fire there are a few more progressive stages - Barista Fire, Lean Fire, Fire, Fat Fire
Great post. Thanks!
On his deathbed, Steve Jobs said: "Don’t educate your children to be rich, educate them to be happy so they know the value of things and not the price."
This article reminded me of this quote.
There's so many Boomers (and older GenXers) who have loads of money but who are running out of time.
A billion dollars is worth nothing to a man on his deathbed.
Time is the the only commodity that matters.
My goal in life is to die a penniless old man, surrounded by a large family who love me, who I love back.