Last month, someone posted that they went from being financially independent (FIRE) to no longer financially independent because they purchased a home. Living in high-cost-of-living areas often presents one of the biggest internal mental struggles for many of us. Sam Dogen, 46, is a financial blogger. He earned his MBA from UC Berkeley, Haas. After working as a financial analyst and executive director at Goldman Sachs and Credit Suisse, respectively, he achieved FIRE (financial independence, retire early) at the age of 34, with a net worth of 3 million.
While his passive income in 2023 was on track to generate $380,000, after purchasing a home, his passive income was estimated to decline to about $230,000 in 2024. This serves as a good reminder that FIRE is indeed an ongoing pursuit. No doubt, reaching FIRE is a huge accomplishment, but it’s important to remember that it can be lost overnight. It is a nightmare for those of us who want to achieve FIRE that, for whatever reason, once we finally achieve it, we could lose the ability to maintain FIRE.
However, many may wonder how a family of four cannot survive on $230K. A closer look at the expense breakdown makes it clear that the expenses are not disproportionate and are, in fact, very realistic for a family of four with a not-so-lavish lifestyle in an urban city. Now, some may argue – how is sending kids to private schools and taking three weeks of vacation per year not lavish? Keep in mind, this is for a family of four in San Francisco.
While I wouldn’t say Sam’s life is extremely frugal, it is also not considered lavish. This reflects the cost of living in San Francisco. You could live an extremely frugal life, but you wouldn’t want to deprive your children of the exposure they could gain at an important stage of their lives. At the end of the day, the schools that your children attend are filled with other children who spend their vacations not necessarily in the most exotic places on earth every year, but also not spending the entire summer on a farm.
Unfortunately, these are the types of struggles people are dealing with right now. This may seem like a first-world problem, and it very much is. However, the struggle is still real. While wealth is objective, with clear boundaries for the poverty line, lower class, middle class, and upper class, the sense of wealth is relative.
The sense of wealth is relative
Importantly, the ecosystem in a city like San Francisco is built around tech employees who make an average of $350K a year a few years after college. Avocado toasts are selling for $14, and specialty coffees for $8. You may have saved enough for your nest egg for FIRE (let’s say not just lean FIRE), but your money may not go as far as you had wished if you are not careful.
The bottom line is, achieving FIRE is an ongoing effort that you need to manage. It’s like your health. You could exercise a lot to achieve your desired body shape with 3% body fat. But even after that, if you stop monitoring what you eat and cease exercising, you could lose all the efforts you put in.
In our opinion, the ideal FIRE is not just about reaching the target figure alone, it’s also how you get there. If all your nest egg is in stocks, then during an economic downturn, you could be tied up, with your withdrawals draining your principal. The ideal way to prepare for FIRE is to have built up side hustles that generate cash flow. For example, have a side business (e.g., real estate rental or a website) that generates part of your income. That way, whatever happens, you will still be covered.
