All I want to know is where I’m going to die, so I’ll never go there.
Charlie Munger
As a tech couple in the bustling Bay Area, my partner and I have been on the FIRE journey for over a decade, and have set the ambitious goal of striving for FatFIRE in the next 5-10 years. Recently, I’ve been thinking a lot about what the mistakes are for people when they pursue FatFIRE. In this blog post, I’m sharing the top 7 mistakes I’ve identified from people who’ve achieved FatFire.
What is ChubbyFIRE and FatFIRE?
Net worth for ChubbyFIRE typically ranges from $2.5 million to $5 million, while household income hovers between $150,000 and $250,000 per year.
On the other hand, those in the FatFIRE category have a net worth of $5 million or more and enjoy an annual income ranging from $300,000 to $2 million. See the full article here on various levels of FIRE.
So, what are some mistakes for people pursuing FatFIRE?
1. Over-Optimizing on the Small Stuff
For someone on the path of FIRE, it’s easy to fall into the habit of optimizing for the tiniest expenses. From debating where to buy the cheapest groceries to meticulously tracking our expenses, we thought we were on the right path. However, we soon realized that this hyper-focus on saving cents was distracting us from the more critical decisions that could impact our financial future.
What to do instead: Shift your focus to the bigger picture. As our income reaches a certain threshold, it’s appropriate to begin valuing time more than ever. Instead of obsessing over insignificant costs, spend more headspace on fewer, needle moving decisions. These can include optimizing a portfolio’s asset allocation, maintaining or increasing overall savings rate, and investing in career growth.
2. Getting Impatient and Chasing Shortcuts
The tech industry surrounded us with success stories of overnight multi-millionaires. It’s easy to get impatient. The temptation to find quick routes to FatFIRE is ever-present.
Many friends in the high income bracket are approached by families or friends to invest in a distant relative’s startup, an acquaintance’s restaurant or bar venture, or even considering starting up their own side businesses with a few partners.
While these investments sound fancy and make for good dinner conversations, they often are speculative and have a low risk adjusted rate of return. Personally, I chased the crypto craze a few years ago a bit too enthusiastically, resulting in a loss in net worth during the market crash.
What to do instead: Stay disciplined in investments and stick with the long term strategies. Understanding that true wealth takes time to build. The pursuit of FIRE has always been about patience and steady progress. Don’t let the shiny objects syndrome get the best of you!
3. Misusing Leverage and Complex Investments
In the tech and finance communities, it’s not uncommon to come across friends who are active in complex financial instruments and investment strategies. The allure of using leverage to amplify returns is appealing. Think margins, derivatives and options. Yet these attempts to outsmart the market is another pitfall while growing wealth, probably one of the most destructive and riskiest. When the market is highly volatile, these can lead to significant losses if not managed carefully.
What to do instead: My personal rule of thumb is to never use leverage that will eat into the base of my investments. When it comes to investing, boring is the way to go. Stick to the simple and boring strategies.
4. Succumbing to Lifestyle Inflation
As income grows and wealth accumulates, it is tempting to increase spending in tandem with financial growth. Especially in the Bay Area, there’s no shortage of tech multi-millionaries. A “regular” single family home in the Bay Area Peninsula and South Bay area (Burlingame, Redwood City, Menlo Park) sells for $2.5-3mm. And even if you live in a less expensive area in the world, it is easy to succumb to the allure of Instagram-worthy vacations in 5-6 stars resorts.
While I personally do advocate to increase lifestyle and loosen the belts a little as a form of reward to our hard work, excessive lifestyle inflation simply pushes the FatFIRE or any FIRE timeline further away from the horizon.
What’s more, some lifestyle inflation purchases come with inflated ongoing costs. For example, a more expensive home leads to increased property tax each year.
What to do instead: We are still looking for the right balance when it comes to lifestyle improvement vs. lifestyle inflation. One area I’m starting to do is to recognize the importance of mindful spending. It is about paying attention to what truly brings us joy and fulfillment. I came up with a list of things that make us happy and increase our wellbeing (save time, or eat better, or get healthier). Whenever I think of a large spending, I consider first whether it falls under that list.
5. Neglecting to Invest in Your Network
Many ChubbyFIRE achievers got to where they are at in their wealth building journey by doing their job well. They usually have high paying jobs in a desired field of expertise, such as medical, engineering, legal, accounting.
To move to the next level and pursue FatFIRE, building a robust network can be a powerful catalyst for success. As I observe successful FatFIRE individuals, I notice that many of them maintain and grow deep professional and personal networks. They leverage their networks to access exclusive career or investment opportunities, insights and collaborations.
That’s why people in a certain industry move to a center of gravity to take their career to the next level. For example, tech people gravitate towards the Bay Area, people in entertainment move to Los Angeles and people in finance move to New York City.
What to do instead: Having been in the tech industry for over 10 years, I can’t emphasize the benefit of a strong network more. Your network is your net worth. Take a proactive approach to expand your network, not only when you need something (eg. a job etc).
For most of you who are pursuing FatFIRE, like us, you probably live in an expensive area of the country or the world. Take advantage of the density of talents and highly motivated people who also live around you! Actively seek opportunities to engage with others, learning from their experiences and sharing our knowledge. Building these connections will compound over time like investments, open doors to job opportunities, partnerships and investment avenues down the road.
6. Overlooking Real Estate Investment
During our early FIRE achieving stage, I have been hesitant to venture into the world of real estate investment. This is partly stemmed from my upbringing where my parents would say all debt is to be avoided, and only buy real estate with cash. On top of that, the complexities surrounding property ownership, mortgage application, along with fears of market fluctuations, made me wary of taking the plunge.
As I delved deeper into the world of financial independence, I am recognizing that real estate could be a potent wealth-building tool when approached strategically. Owning property not only offers potential for appreciation but also provides a source of valuable tax deductions.
On top of that, having real estate exposure can lower the fluctuations of aninvestment portfolio, especially if it’s primarily exposed to stocks.
What to do instead: This year, I started to seriously explore real estate investment. By employing proper risk management, I aim to diversify my investment portfolio to include some real estate holdings.
7. Over-depriving and Over-delaying Gratification
Reaching any FIRE level is no small feat. Most FIRE people we know have been frugal for years in order to save more than 50% of their income each year. It’s easy to be so focused on reaching a number on the spreadsheet that we neglect to let the milestones sink in, and enjoy the rewards of our hard work.
Saving diligently is crucial, but denying ourselves all pleasures along the way can lead to burnout and frustration. savor the journey while striving for the destination.
What to do instead: We decided to incorporate some indulgence into our financial plan. How’s this different from the lifestyle inflation we talked about earlier? The key is to make sure to save more than the growth of earnings.
Personally I allocate a portion of income each month to guilt-free spending. It’s highly personal what the amount would be. I can either use it up that month to buy a piece of clothing, watch a show, or save it up for a larger purchase down the line.
I also have a set of milestones and create a reward attached to each milestone. These milestones could be a specific number in net worth (eg, $1mm, $2mm, etc), a specific annual income ($100k, $250k, $500k etc), or a FIRE goal (eg, LeanFI, FIRE etc). The rewards associated with each milestone can vary from a fancy meal around town, a luxury watch or accessory, a dream vacation, etc. I particularly love this approach as it also makes each purchase more meaningful.
Life is more fun when not taking it too seriously
Wealth is not just a number on the spreadsheet but also about crafting a life of purpose and joy. I find it takes reflection and constant balance to simultaneously enjoy the present and plan for a future.
What are some mistakes you are avoiding on the way to FIRE or FatFIRE? How are you finding the balance between present and future gratification?