The other day I learned a new term – Coast FIRE.
The traditional way of chasing FIRE is to have all of your expenses covered by a passive income, often in a stock index fund.
We know that in order to have enough for the rest of our lives, we need to have 20-25 times our annual spending.
But Coast FIRE is a bit different. And it is quite powerful for many of the young fellaz out there trying to reach FIRE.
The power of compound interest is very big when we are able to save money as young. If we have a 7 % annual return, our money will double every 10th year or so. This means that if you have a 1000 $ it will double to 2000 $. From there it will double to 4000 $ and so on. If we have a good amount of money when we are 30 years old. That money can easily double 4-5 times.
Or said different. Our 1000 $ at age 30 can easily grow to 16.000-32.000 $ in our life time.
What Is Coast FIRE?
With Coast FIRE we take advantage of that compounding.
Let’s imagine that you read this in age 25 (no worries if you are older). If you can to get to 500.000 DKK (76.000 $) by the time you are 30 years old, you never have to worry about that retirements saving again. From there we won’t have to add another dollar for the rest of our lives to that account. Because it will compound into A LOT of money.
If we leave 500.000 DKK (76.000 $) in a stock index fund from 1976-2016 we would have ended up with about 13.000.000 DKK (2.000.000 $) (adjusted for taxes, inflation and fees)*. That amount at age 70 will roughly put us in the top 1 % wealthiest here in Denmark.
And that is Coast FIRE. Figuring out how much money you will have to save and invest, and them leave the entire portfolio until the day that you retire.
If we earn 20.000 DKK/month (3000 $) after taxes, and saving 50 % of that in able to reach Coast FIRE, we are only spending 10.000 DKK (1500 $) a month.
If we are able to reach 500.000 DKK (76.000 $) at age 30, we can from there go out and take a part-time job that pays us 10.000 DKK/month. Because that is what our spending is. And with peace in mind know that our financial situation is going to be great because of compound interest.
We can take up jobs that we find more enjoyable than the stressful corporate job. I could see myself as a rowing/crossfit trainer or having a small mason company. Because that is something that I enjoy.
But even if we do stuff that we love for 40 hour/week, that too will be an ignoring task. I love rowing for example, but after two months on a training camp, doing nothing but, eat, rest and train, I look forward to come home. But I still love rowing.
How to Reach Coast FIRE in Two Years
And I’m here to tell you that we can reach Coast FIRE in as little as two years. If you are between 20-30 years old when you read this. You will be able to become very rich and not spend 40-50 hours/week on a job.
Let’s imagine that you get inspired to reach FIRE. but the numbers you need to reach are to overwhelming, so you decide to go for Coast FIRE.
At this very stage, your portfolio is at 0 $, but you have burning desire.
If we earn 20.000 DKK/month (3000 $) after tax, and save 50 % of it. That means we save 120.000 DKK/annual (18.000 $). Because we are young it can make sense to leverage our investments with as much as 2:1. Said another way, for every 100 $ we invest, we borrow another 100 $, so we end up investing 200 $ instead.
Now we are saving 240.000 DKK/annual (36.000 $) instead of the 120.000 DKK. That means that we can hit our 500.000 DKK in as little as two years from now.
But Loui?! Then I would have 240.000 DKK (36.000 $) in debt.
Yes that is correct.
240.000 DKK (36.000 $) can seem like a big sum of money when you are young. But if we compare it to how much money they can compound into AND how much money we can earn in our entire life. That money is only a couple of percentages of our entire earning power.
If you read this, and decide to do it. You can have a full-time job for as little as two years for your WHOLE life. From there you only have to make 10.000 DKK/month, which is something that you could do part-time with jobs you actually like. Or you could work full-time a couple of months, and then travel to cheaper places where 7.000 DKK/month would make you live a royal person.
And that portfolio is going to grow. If we want to, we could start to withdraw from it down the road. Because it becomes big enough to finance everything on our budget, and retire at a traditional age with bit less money than 13.000.000 DKK (3.000.000 $).
6 thoughts on “Coast FIRE – Ever Heard of That?”
Really interesting! I have leveraged 35.000 USD $. My portfolio is aprox 140.000 USD $. That means my gearing is only 0,3. But in Norway on my platform Nordnet you can’t leverage more (unless you accept an interest rate on 4,44 %). My leverage now is at 2.19 % interest rate.
What is your interest rate?
Loved your blog, and want to follow your journey further. Do you use Twitter?
Nice to hear from you Route2FI..
Just saw your blog and it is awesome! Really like it!
Oh! You are a bit ahead of me then! Good job!
I use the same platform, but in Denmark. And we have a bit more lucrative rates than you Norwegian guys.
If we can keep us below 40 % of the portfolio value we will have 0,99 % ..
If it goes higher than 60 % we will be at 1,99 % .. I have been swinging from 0,99 to 1,99 the last couple of months, during the volatile market.
No, I don’t use twitter.
But I just saw your very kind words on one of my blog posts! Thank you so much!
As I understand it, you use Nordnet and leverage there by borrowing money when investing. You try to keep an interst rate at 0,99% by keeping your leverage below 40% of the total portfolio value.
Can you still use the monthly deposits (“månedsopsparingen”), when you leverage your investments? What is the product you are using in Nordnet where you can leverage your investments?
That is correct. (sort of)
If I invest 500 $ (own money) + 500 $ (leverage) = 1000 $ then Nordnet see my portfolio value as 850 $ ..
So then I can borrow 40 % of those 850 $..
They have a factor for every investment you make. Less risky investments like index funds has a higher factor. And more risky individual stocks has a lower factor.
Unfortunately no. Your account can be in minus and still using the “månedsopsparing”.
But when I’m leveraging I invest like 30.000 DKK which is 30 DKK in fees from nordnet, which is an expense I’m willing to pay.