Depending on your command of these core skills, you may be someone who achieves financial independence, retires early (FIRE) or is forced to settle for debt insurmountable, retirement extinguished (DIRE).
The vast bulk of American workers are loaded up with debt. On average, American workers have 144% more debt than they do annual income. In dollar terms, that means that for every American who earns an average hourly wage and earns an annual income of $48,294.48, the amount of debt they owe is $69,544.05. Clearly, with so much debt overhanging their financial goals, the notion of financial independence, retire early is far from likely.
But what are the skills so many American lack that keep them from the dream of FIRE? Why do so many Americans place their financial futures at risk, and choose a DIRE life instead? And how can an American facing a DIRE future change their course in an attempt to become someone who can at least contemplate FIRE?
These core skills are what separate the American workers who can reasonably achieve (or have achieved) FIRE from those whose DIRE fate is all but sealed.
Fearlessness
In the United States, Insurance is a $1.274 trillion industry. And every year, that number grows. There are well founded reasons for insurance to be a big business in the United States. Automobile insurance is required by law and for good reason: drivers take risks every time they hit the road. However, many Americans double or even triple up on coverage they may not even require.
A great example is travel insurance. In many cases, Americans travel to destinations that have more comprehensive forms of health insurance than are present in the United States today. Further, many employer paid health insurance plans offer travel coverage. And since virtually all Americans carry credit cards, a significant number of card providers include travel insurance as either part of the annual fee, or as a perk paid for out of a portion of the annual percentage ate (APR) charged on balances.
Beyond travel insurance, many Americans opt for more insurance than they reasonably need because they seem to live in fear. Whether it is the fear of a gun wielding maniac, terrorists, or some other extremely unlikely life threatening scenario, Americans are disproportionately insured as compared to the rest of the planet. In fact, the United States has less than 5% of the global population, and yet accounts for 27.46% of the insurance premiums paid per year.
Insurance is a silent killer when it comes to your finances. With coverages that are unnecessary or cover risks that are in reality extremely unlikely to materialize, Americans are fueling a DIRE future with their insurance payments. Followers of the FIRE movement cover the basics with insurance, but they avoid going overboard. Being more fearless than fearful, American FIRE proponents limit how much of their hard earned cash goes into the pockets of enormous insurance companies.
Go from DIRE to FIRE: Inspect your various forms of insurance, and cut coverages you do not actually need.
Discipline
Discipline is a biggie. Like, super biggie. Not only does it take discipline to craft a plan that accounts for a reasonable amount of spending, it takes major amounts of discipline to stick with it. Often when creating a financial plan, FIRE hopefuls cut their spending to the absolute bone. In an ideal world, sure, it would be great to live on next to $0 in discretionary spending. But the reason so few people wind up being capable of sticking to a plan like that is its a plan that essentially demands you act in a manner that is anti-social. The reality is that everyone needs a relief valve in their financial plan to enable them to continue to have a fun, enjoyable life while also saving responsibly. Without a recognition of a reasonable amount of spending, a plan that attempts to clamp down is actually a plan crafted without discipline.
In a more reasonable plan, there is still the execution part that is essential to achieve FIRE. Sometimes this might call for your to get a little creative with how you spend in areas for which you have set aside a spending budget. For example, a clothing budget will go a lot farther if you do your clothes shopping at the local thrift shop. Before you turn your nose up, make sure you at least give that idea a chance. You will most likely be amazed at the top notch clothing available, and you'll be flabbergasted by the low price.
Another way to make your budget go farther is by purchasing non-perishable items in bulk. Whether you spent $1.00 per can of tuna fish or $2.00 may depend on how many cans you purchased initially. A difference of $1.00 versus $2.00 may not seem like a big deal, but repeated across your grocery bill over the course of a year may be a difference that comes closer to $1,000.00 than you think.
Go from DIRE to FIRE: Build the discipline necessary to craft a realistic financial plan. Be creative in how you spend in an effort to stick to the plan for the long term.
YOLO, But Its A Long One
FIRE achievers appreciate the idea that You Only Live Once (YOLO) but that doesn't mean they apply it to every spending opportunity that confronts them. In fact, the focus they have on saving for the purpose of retirement may qualify them as even more stringent adherents of YOLO that most. Seeing an ice cream vendor and deciding to buy one because after all, you only live once, is an excuse to help ensure the one life you live will be DIRE sooner than later.
Instead, the trick with YOLO is to pick and choose very carefully spending opportunities that truly fulfill the promise of being a once in a lifetime expense. Ice cream most definitely does not qualify, but just as importantly very few things actually do. In order for a purchase to truly be once in a lifetime, it must provide greater value that its price tag, and it must not be a repeatable purchase. You might believe that ice cream provides more pleasure that it costs, but there's no truth to the idea that you can't repeat the purchase of ice cream. Ice cream is actually one of the few products you can purchase from the grocery store in complete, ready made format. Just open and scoop.
Once in a lifetime purchases are likely to be less expensive than regular purchases you are tempted to label as once in a lifetime. The bus fare you spend to travel to a hospital to visit a dying relative may qualify as once in a lifetime. An auction for an original piece of art may be a once in a lifetime purchasing opportunity. And although qualifying as extremely expensive, paying for tuition to a difficult to enter educational institution may indeed be a worthwhile purchase under the guise of you only live once.
Go from DIRE to FIRE: Stop using YOLO as an excuse to purchase everyday items that are easily accessible and most definitely not once in a lifetime. Identify truly unique opportunities, and realize that achieving FIRE is the real YOLO.
Summary
What separates people who achieve FIRE from those dragged into a life that is DIRE are core skills mastered and applied to savings and spending habits. Living with little or no fear means that your spending behaviors will not result in money being thrown out the window and caught by large insurance companies. Applying discipline not only to the creation of a reasonable financial plan but also to the spending behaviors necessary to stick to it are major factors in leading you down the right path. And being able to differentiate once in a lifetime opportunities from run-of-the-mill spending situations will help ensure that not only do you spend your money wisely, the areas where you do spend will be more rewarding.
Are you facing a financial future that is DIRE? Are there skills you know about that are essential in separating FIRE from DIRE?