Coronavirus vs FIRE

Mar 30, 2020 / Day Job & the Practical / financial independence retire early (FIRE)

man holding up poster of sky against background with sun
Holding Sky. Toned Cyanotype Print, 2011. Two print sizes. © Jonah Calinawan

Celebrated playwright Horton Foote once said that to make art you have to know the history of your medium, you have to be a product of your own time and write about your own generation, and finally, you have to belong to a place. Paraphrased from a story told by photographer Keith Carter in his book A Certain Alchemy. I remember this advice when creating art.

Although this is an artist journal and not a news blog, we’re in an unprecedented time. The pandemic’s health and financial devastation will be a defining event of our generation. I need to write about it.

The FIRE approach

I quit my accounting job just last year, on October 31, 2019. I bought into the Financial Independence Retire Early (FIRE) movement. Finally, I could focus on art.

The FIRE movement is based on the idea of a person accumulating an investment nest egg as fast as possible so that he can stop working, well before normal retirement age. The passive income and capital from the nest egg are what he then uses to fund living expenses.

The process requires a lot of sacrifice. Most people achieve it by cutting their living expenses. All future wage increases are automatically invested. People do this year in year out. The more you save, the faster you get to FIRE.

FIRE offers freedom. Some people travel the world, build a business, or focus on passion projects. As for me, I wanted to be a full-time artist to see where that would lead.

The biggest risk with FIRE is running out of money before you die. Because the investment nest egg has to sustain someone for a very long period of time, it is usually invested in the stock market. You wouldn’t, for example, put your investment nest egg in a savings account because the rate of return would be nothing. It wouldn’t even cover inflation. Thus, the most logical place is to put it in the stock market.

Coronavirus tests the FIRE movement

In just two weeks, the value of my retirement investments dropped by almost 30%. We’re not done yet. There is more to come.

I saved diligently and obediently for over 25 years of my accountant life. To have a large portion of my life savings disappear is frightening.

The important thing to remember is that this loss is unrealized (“paper loss”). It’s temporary. Eventually, the stock market will bounce back. That might take a very long time, but eventually, it will recover. The worst thing we can do right now (if you’re in the same situation) is to sell. That’s when you get hurt for real since it will now be a realized loss. The money is gone forever. The best course is to do nothing and just wait.

One of my art goals in 2020 was to start generating income from (1) the sale of my cyanotype prints and (2) ads and affiliate links in my blog. That’s now unlikely.

FIRE requires thorough planning

Before I quit my job, I did a lot of number crunching as to what would happen if there was a huge market crash. The 1918 pandemic and the Great Depression were so far away in history, I never thought I would experience such cataclysmic events.

Financially speaking, for now, I’m not worried. I have faith in my what-if and scenario analyses. However, I’m worried about other people who were in the same path as me who were planning to quit their jobs to follow their bliss. That notion seems so naive now. The unemployment rate just spiked last week. I’m reading about office workers like accountants simply getting laid off. I think about people who used credit to finance their lives or who live from paycheque to paycheque. I am very scared of what might happen in Africa and lower-income countries. The health and financial fallout will be severe.

Emotionally speaking, I’m going through what everyone is going through. My partner works in the hospital. We have aging parents on both sides of the family. No one is immune to this virus. Anyone could get infected and die. Most people who get it turn out fine, but it’s like playing Russian roulette. You don’t know how your body will react. All I can do is stay home and not be part of the problem.

Will Coronavirus kill the FIRE movement?

Even in the best of times, it was a tough sell to tell people to save money to build up that investment nest egg as fast as possible. The savings rate in the USA, for example, is about 8%. This is very low if the goal is to be financially independent. How can you save for the future when you have to pay rent and buy food now? The coronavirus and the imminent recession (or depression) will exacerbate this inability to save.

I predict there will be a cooling-off of the FIRE movement. It was buoyed by the seemingly endless bull market for the past 11 years. It’s so easy to forget the 2008 market crash or even the 1987 crash.

But the Time to Embrace FIRE is Now

While the public will get turned off by FIRE, for career switchers who want to become artists/entrepreneurs at some point in the future, now is the perfect time to embrace FIRE. Like the sun rising up the next day, the stock market will rise too. Since we’re in the bottom (or will be there soon), the only way is up. Once there is a vaccine, which may be at least 18 months away, the economy will skyrocket. There will be gyrations and corrections in the market for sure. The Organisation for Economic Co-operation and Development (OECD) warns that it is wishful thinking for the world to simply bounce back. The recovery might take years.

If there is one thing you take away from this article, it’s this:

When the economy and the stock market starts its recovery trajectory, you’d better have been putting money, no matter how small, during the bottom. Review your expenses now and see what can be re-directed for investment. I’m doing this now.

Learn about FIRE

If you want to learn about FIRE, I include links below. Don’t get turned off by greed words like millionaire or rich. FIRE people know that in order for their investment nest egg to last, they have to be frugal. They reduce expenses as much as possible and live modest lives.

Coronavirus Preparations & Nature of Life

You Can Still Travel - With your Instant Pot

Haircutting 101: the Coronavirus Edition
Simple Retirement Calculator
What I Would Have Done Differently To Become An Artist

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