I love reading about young adults who are pursuing their dream of FIRE. Some spell it FI/RE. Regardless of how they spell it, they are intentionally seeking to be “Financially Independent and Retire Early.”

If FIRE is the American Dream, most people never actually wake up to this reality. Financial independence is rare and certainly not average—but it can happen more often than it does.

Why do these millennials want to be different from their peers and parents?

Because the average American is broke, a few weeks or one surprise event away from not having enough cash to pay the bills. If a surprise repair, illness, or loss of

employment comes their way, they could face real financial difficulty.

According to studies by the Federal Reserve, GOBankingRates, The Center for Retirement Research at Boston College, and many other sources, more than half of Americans live paycheck to paycheck, do not have an emergency fund large enough to cover several months of living expenses, do not have multiple streams of income, and have little saved for retirement. 

The research consistently shows that the bank account of almost every other person in the United States is empty. Few Americans have enough money on hand to buy a new set of car tires without borrowing more money.

If half the people have little to nothing, then being broke is common in America.

Being broke is possible whether your income is high or low. Many low earners have a positive net worth, albeit small, and many high earners have more debt than assets, making them poorer than the low earners who have a positive net worth. I call them the “faux rich.” They drive expensive cars and live in expensive homes, but the bank owns everything, including their future paychecks. 

But let’s see how the other half are doing.

There are about 10 million American millionaires. If the country’s total population is about 326 million people, that means about 1 in 32.6 people, or about 3% of Americans, are millionaires. Other reports find closer to 6% in the “two comma club.” Whether we are talking about 3% or 6% of Americans, we are clearly talking about the top few, not those of us who live in the middle and lower levels.

Let’s look a little deeper and find out more. Research shows that most of the world’s wealth is – surprise – located in America! More than 40% of the world’s millionaires are our neighbors. When we average savings and net worth across the entire population, these high net worth families obscure the practical reality that most people in this wealthy country actually have little wealth.

The problem is not that most of the money in the world is held by a small group of people. The problem is that most people don’t manage the money they have well, spend more than they earn, and have no net worth.

The solution to this problem: act like your own CFO by actively supervising every dollar and expecting it to be a productive employee. Save and give first; then live within the residual.

That’s how my parents, a factory worker and his disabled wife, were able to buy new cars and retire comfortably, at least for the first 18 years of early retirement. Their story prompted me to study personal finance.

It is my privilege to help people take control of their money. We can call this management or stewardship, but it all boils down to three basic factors: desire, education, and the self-discipline to stay on course.

Anyone who will put away more than 10% of their income will eventually become financially independent at their standard of living. While this doesn’t mean that someone earning $25K a year will become a millionaire in 10 years, here’s what it does mean: statistics repeatedly show that those who save and invest more than 10% of their income will, over time, accumulate enough assets to replace their income during retirement. This method of achieving financial independence is called frugality, and most Americans can achieve financial freedom if they truly desire to do so and have the knowledge and discipline required to practice frugal living. 

You are reading this article because you want to learn about personal finance. Thank you for letting me help you a little today.

FIRE doesn’t mean you have $1,000,000+ in assets. Those who become financially independent early take risks that average employees do not take. I will talk about these risks and rewards in other posts, so please follow my blog and share these posts. We can all learn more about how to live well, retire confidently, and give generously.

 

 

Sources reviewed for this post, accessed March 29, 2018: