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There’s this group of people that are joining what’s called the fire movement, their goal is to have financial independence, and to retire early. You might have heard of these people, I’m one of them, and I want you to be as well. There’s 3 main levels of fire. LeanFire, Fire, and FatFire.
LeanFire is where you save 25 times what you spend in a year, which is when you’re considered LeanFire. That means if you spend, $20,000 a year, you’d save $500,000, and if you withdraw your savings at 4% while it’s invested in the stock market, the idea is that you’ll make $20,000 a year, without ever running out of money, therefore, you are considered “retired”. The goal, is to do this, as soon as possible in your life.
Once you achieve it, you can cruise around in your awesome Tesla and do whatever you want. Unfortunately, you probably can’t afford a Tesla on just LeanFIRE alone, you have to go to the next level.
FIRE, this is when you spend about what the average US household income which is around 60k a year. To make 60k a year, you need to save 1.5 million dollars and have a withdrawal rate of 4% to live the average lifestyle of 60k per year. But even at that level, you still can’t afford to own this car based on the fat fire 1/10 car buying rule.
To afford that Tesla, you need to aim for FatFire which starts at an above average income of 100k. To make a 100k a year passively, the FatFire movement says you need to save and invest 2.5 million dollars.
The price of the Model Y in the video, out the door is $59,900, which when invested in the S&P500 for the duration of your working career which is on average anywhere 40 years. If you took that money and invested it at just 7% per year average return, at the end of your 40 year career, you would have $896,970.02. This is FIRE territory for most people.
If you don’t make 10x what your Tesla costs, then here are some cars to consider in relationship to your income level.
$25,000 – $50,000 a year – you’re looking at roughly 10+ year old cars that are worth anywhere between $2.5k to $5k. I like to call this the Scotty Kilmer range, that’s your beat up Toyotas, and Hondas.
$100,000 – $200,000 a year – get yourself a newer reliable Japanese car. Toyota Yaris, Kia Rio, Honda Fit, Nissan Versa, Hyundai Kona if you’re a family person, maybe a Toyota Prius if you can keep it under $20k, Hyundai Elantra, we got a used 2017 Toyota Corolla. Not the best option but they’re all reliable, they look decent, and they get you there.
$200,000 – $250,000 a year – this is still not the income level where you buy Mercedes and BMWs, here you can get something like the Ford Fusion, the Toyota Camry, the Honda Civic Sports versions. Something a little bit more fun and speedy like the Volkswagen Golf, maybe a hybrid option. Anything $25,000 and under.
$250,000 – $500,000 a year – this is where the luxury income bracket starts. Here you can get yourself anything between 25k to 50k, this is the Mercedes C-Class, Lexus ES, Audi TT, Toyota Supra, BMWs, 1s, 3s, 5s, and Tesla Model 3 and the Model Y non performance editions.
500k to $1,000,000 a year – you still technically shouldn’t be buying Ferraris and Lamborghinis. This is the income bracket of certain models of Maseratis, used Bentleys, Porsche 911s, and all of the Tesla Models with the exception of the Tesla Roadster. You can go for a used Ferrari or Lamborghini here, but you shouldn’t be buying them new here, even if you make half a million a year. That belongs in the next bracket.
$1,500,000 and above is about where it starts for the Ferrari, the Lamborghini, and the McLaren, that’s this income level. Which isn’t to say if you make this much you should be buying that. 1.5 million will get you cars valued at $150,000 or 10% of 1.5 million.
If your net worth is above a couple hundred thousand dollars (half a million is a good start), you can convert the 1/10th rule to 5% of your net worth. So if you have a million dollar net worth, you can buy a car valued up to $50,000.
That brings me to this Model Y and why you probably can’t afford it, it would take roughly $600,000 dollars a year to afford this car, which most Tesla drivers are probably not making. Or you could go with the 5% net worth rule, which means the specific Model Y in the video, I would need to have a net worth of $1.2 million dollars. That’s a lot of money. Do you have that much to waste?