What would it be like to live the FIRE lifestyle? What would you be doing if you could achieve it?
What would you do if you knew that your work was over and you didn’t have to go to the office again? You would not need to worry about deadlines, bosses, or coworkers. You could wake up whenever you want, spend time with your family and friends as much as possible, travel around the world, and enjoy life. Sounds like a dream come true! But what does it take for this dream of retiring early to become reality?
Do you want to retire early?
The average American spends $1,000 a year on coffee. That’s right – that means they’re spending more than $10,000 over the course of their lifetime. And if you’re not careful with your money, it can be easy to spend more than you earn and wind up in debt. But there is hope! You can become financially independent by following these simple steps.
It doesn’t matter how much or little money you have now because anyone can achieve financial independence and retire early with just a few adjustments to their lifestyle and budgeting habits. If you follow this guide, we guarantee that your life will change for the better forever! All it takes is some discipline and dedication from yourself so get started today!
Who says you have to work until you’re 65? Asking this question opens up other avenues of thought: do I want a career, how can retirement fund my dreams, and why are we expected to retire at all?
Who decides when it is time for us all to become bumbling old ladies living off the government’s dime in some nursing home with too many rules or that one family member who has always been there for you growing more distant by the year because they’re just so tired.
As a society, we have been conditioned to believe that retirement is the sweet spot between our youthful vigor and old-age physical decline. The 65 age limit for most people was set in stone by Congress during World War II when Social Security first came into existence.
The US government has always had an interest in keeping as many of its citizens employed past their prime working years as possible because it helps with unemployment rates but also boosts tax revenue due to higher income levels while simultaneously reducing pension costs from those without dependents who are no longer contributing anything financially after they retire at 55 or 60 (depending on what individual program you’re enrolled under).
As such, this allowed them to keep taxes low since there would be fewer retirees collecting monthly money each month versus full-time employees.
What if you could retire tomorrow? What would be your top three goals for the rest of your life then, and why do those things interest you so much?
If I had enough money to retire tomorrow what are my top 3 goals in life, which would include taking care of myself mentally/physically, traveling of course, and helping our youth.
What would you be willing to give up for a day job that doesn’t feel like work? Would it involve giving your weekends off and having an income of $2500 per month, or is there something else more valuable than free time in the form of material goods among others?
The FIRE movement encourages followers to create their own retirement timelines, which has been shown to be a more effective method than following conventional wisdom. This post is what you need to know about the movement, from its pros and cons down to how exactly one can achieve it themselves.
Financial independence is not the same thing as being rich. It specifically refers to the ability to cover your monthly living expenses with passive investment income alone, independent of a job – in other words, never needing another paycheck again.
The acronym FIRE stands for “financial independence and retiring early.” Not needing a job to pay your bills is what it means to be financially independent. People who have never heard of the term before may ask, “Isn’t that just being rich? What do you mean by retired? Isn’t retirement when someone stops working at their current employer?”
The idea behind financial freedom looks nothing like traditional notions of sitting in front of an office desk each day until age 65 or 67. Financial Freedom means having enough passive income coming from investments such as stocks and bonds so that living expenses can cover themselves without any work needed on top.
If you are able to save $20,000 per year and live on no more than that amount while earning an annual income of only $40,000 or less (you can still be living a middle-class lifestyle), then in five years time your savings would total at least half a million dollars. You could use this money as the basis for investments so that it will grow exponentially over time.
You don’t have to earn millions of dollars each year before becoming financially independent with modest expenses because investing is such an important part of success! If you invest just 20% annually into stocks and bonds from age 25 until retirement at 65, by the end of those forty years you’ll accumulate about 500 thousand bucks without ever having made much above moderate incomes.
Investing is the key to financial independence, not earning big bucks. If that’s something you’re interested in learning more about then this post will help provide options for all budgets and experience levels!
People always wonder what to do when they reach retirement age. You can spend your time on the things that money cannot buy, but you have a choice: Spend it all on enjoying life or invest in something that will make more of it for yourself and others down the road!
The inverse relationship between feeling wealthy and becoming wealthy is a paradox that few people understand. However, once you come to the realization of this connection, FIRE becomes an intriguing choice as it forces you to reevaluate your priorities in life.
Perks of FIRE
FIRE is an approach to life, where a person strives for financial independence and freedom from the work-for-money cycle. They enjoy many benefits including not having to worry about money anymore or what their boss thinks of them. But there are critics who believe it’s too radical and does more harm than good.
FIRE has been gaining traction in recent years as a movement that teaches followers to make smarter decisions with their finances. The main benefit of this is not having to work again, but there are many more subtle benefits such as thinking differently about money and the act of saving.
Like any popular trend or culture, FIRE comes with its share of critics who say it’s irresponsible for people to give up on retirement as they did during the Great Depression when most Americans were living at subsistence level expectations only without knowing how things would turn out later.
But proponents argue back by saying while some may be choosing between buying groceries or paying bills now because they can’t afford both (and thus can’t save) if you have enough income flowing into your bank account each month, you can choose to spend more on lower priority items like a new car or designer clothes.
The FIRE movement has been criticized for holding all people back, restricting them from investing in other markets that might provide bigger returns than the stock market and bonds. But proponents of this lifestyle argue it’s not about maximizing return but what is right for their individual needs and values.
Removes being tied down between time and money: You are not just chained to your job for 40 hours a week. You have been shackled since the moment you were born because most people live their lives with two constraints: time and money. They work full-time so that they can spend more of their free time doing what they want instead of working; but at all times, there is always something in front o them telling them how much money should be spent on it – whether it’s rent or groceries or even candy bars from 7/11!
Most people know exactly where these restrictions come from: Time was given by the universe and Money came into existence when humans started trading goods for currency centuries ago. These limits determined our freedom back then as well as now–because we still need money to survive and time is a resource that can’t be bought.
But FIRE offers the same freedom in both aspects: Your time becomes your own because you don’t have to work for money anymore; but with this newfound time, you’re also allowed more financial flexibility as well–because there’s no need for constant worries about what needs must be paid for.
FIRE forces you to reevaluate your priorities: In pursuing FIRE, people are forced to ask themselves what their values and goals in life really are. It’s not about maximizing return on investments but rather the right path for each person – because there is no one “right answer” that applies universally to everyone who wants a fulfilling life.
Financial independence is a privilege that not many people get to experience. But when you can decide whether or not work takes precedence in your life, and what type of work it would be if so, then there’s no longer any need for constraints on one’s schedule.
Do you want more hours? Simply find something else with better pay! The choice is yours now; the beauty about this opportunity lies within its relativity and how much control we have over our own lives as human beings – where before constraints prevented us from doing whatever we wanted whenever we pleased.
How much is enough?: I always wanted more. I would go on spending sprees for the kids and then later, when that new income became my ‘normal’, it wasn’t exciting anymore.
There is a reason why retail therapy never feels like the cure. For decades, psychologists have been telling people that there will always be something else to want and more money for it. This phenomenon has been coined hedonic adaptation or “the hedonic treadmill.”
It’s when you’re on this constant quest of finding happiness in new purchases but are constantly disappointed because your expectations keep rising with each purchase until they can’t possibly meet them anymore which leaves the buyer feeling just as empty before their last big buy.
That is me! I am bipolar, so I go on these spending sprees, while they don’t leave me in debt thankfully, I am satisfied for only so long.
Lifestyle inflation is a common phenomenon that often leads to spending more money with the idea of achieving happiness. However, FIRE forces you to define how much money “enough” means in terms of investment income and it stops this vicious cycle for many people–it’s not just about living your life on whatever budget or salary can afford.
The FIRE movement is a powerful philosophy because it doesn’t let you get away with spending more than what your savings can support, which forces you to be mindful of the happiness that comes from being financially stable.
Do you really need to work 40+ years?: The majority of people never question the notion that they’ll work into their 60s. They may have a full-time job and spend nights and weekends with their families, but all joy is lost when you realize this will be your only source of entertainment for decades to come. If not careful, many soon find themselves in debt from mortgages on houses too expensive or cars too extravagant; it’s even worse if these vices are combined!
The average person lives paycheck by paycheck as they continue working up until retirement age without ever questioning what life would hold after starting over fresh at 40 years old instead while still living comfortably within a one-income household (or less). It might sound like a dream scenario now because who wouldn’t want more time spent with their family and less time slaving away? The answer is simple: those who can’t afford it.
Resilience, freedom of choice, and increased mental health are just a few perks that come with this lifestyle change–not to mention the potential for financial gains from investing in healthier vehicles such as real estate or stocks.
Life can be tough when you’re not living a perfect life. Not every day is going to feel great, and that’s okay! You have the power of choice in your hands which means there are more options than just “work” or “weekend”.
It seems like we all live by this same mantra — work then weekend over and over again without any breaks until retirement age. And while working hard isn’t necessarily bad for us (and may even lead to better financial security), there should also be time allotted for self-reflection in our lives as well so that we stay happy through adulthood.
Questioning this assumption forces you to think differently about your retirement. Working for four or five decades and spending 90% to 95% of your income is only one option.
Working for one or two decades or less, spending 30% to 50% of your income and saving the rest, and then doing whatever you like.
We all have different preferences when it comes to work, but FIRE argues that we need the opportunity and freedom of choosing our own career paths.
By taking responsibility for what you want your future to look like now instead of waiting 10 years down the line, you can create a more fulfilling life today without worrying about whether or not there will be opportunities later in life.
Accepting responsibility forces you to be more intentional in your priorities, and the decision of which is most important might depend on what’s going on with your life as it stands. Is spending money today worth feeling rich? Or would accumulate assets that will allow for freedom tomorrow make a better investment?
Go after your dream job: When money is not tied to your decision-making process, you are able to explore more possibilities. The limitation of time and energy has been lifted from your shoulders giving you the freedom to be a stay-at-home parent or an activist for whatever cause that truly means something to them without having any other obligations weighing on their mind.
Imagine a world where you are not chained to your desk because of bills, mortgage, or rent. You can explore all the possibilities that await in life without being burdened by financial constraints.
Imagine the future: A society with no poverty and everyone enjoys freedom from materialistic things like money.
I always wanted to write novels, ever since I was a kid. But I didn’t do it because in my head all novelists were starving artists and that scared me into not following this dream of mine. A few months ago though, the fear started receding like an ocean tide as I’ve been making progress on building financial independence for myself–that’s when writing became something more than just a hobby or “something fun” but a soon-to-be profession where people actually pay me money!
This is why I own like 5 different websites now, I just love to write.
I’ve had stories running around inside my brain from before elementary school even began—not necessarily fully developed plots with characters and settings yet (though sometimes they have been), but at least some ideas about what would happen if X happened then Y happened.
I’ve always told myself I could wait until my financial situation was more stable before pursuing creative writing. But the longer we delay, the less time that is left to actually make a living at it.
What would you do if the rest of your life was free? Would it be better than what you’re doing now, or worse? If only money could answer these questions.
What would happen to society as a whole when all people were financially independent with an abundance of disposable income and time on their hands for leisure activities like eating out at fancy restaurants every day, taking luxurious vacations in exotic locations around the world annually.
Pursuing hobbies that require expensive equipment such as skiing down slopes covered in powdery snow from one year-round resort location after another while living off investments rather than working jobs they don’t enjoy just so they can afford those things themselves?
Your dream job is something that unites your passion and skill set. If you have a hard time identifying what this may be, don’t fret! Pursuing FIRE will help pay for the opportunity to figure out exactly who you are as an individual in society and when it comes down to choosing work or hobbies based on those interests, people can find their perfect fit much easier than they would if they had nothing but money on their mind.
The pursuit of financial independence through diversified investments like stocks should not distract us from our true calling–a chance at pursuing anything we want while being able to make more informed decisions about which careers best suit our skillsets because without having any bills weighing him/her down (except maybe student loan payments).
What the Critics Say
It’s easy to understand why the FIRE movement has a lot of supporters. After all, it gives you more freedom and flexibility with your time while earning money that can go towards travel or other things you may enjoy doing in retirement.
But there are also some valid concerns about this lifestyle change for those looking into transitioning from their 9-5 day job to living off investments alone; here are just a few: -Losses will accumulate over time as stock prices fluctuate wildly without any guarantees on returns
Retiring too soon, not having enough money: Just because you can live on $2K today doesn’t mean that it will be enough to cover your expenses next year. The average cost of living is steadily increasing and so the amount of money necessary for a comfortable lifestyle also increases every day. It’s important to save as much as possible now in order not to get caught off-guard by increased costs later when life throws hard times at us; such events include unexpected medical bills, unemployment, or divorce which all require an emergency fund.
Just because you can currently afford a certain standard of living with $2K per month does not guarantee this income will have the same purchasing power 30 years from now due to both inflation (the diminishing value over time) and unforeseen future expenses.
Financial planners know the importance of taking inflation into account when planning. Inflation is a compounding return on money, so it should be accounted for each year in your nest egg plans. For example, financial planners calculate safe withdrawal rates by adjusting for inflation annually and increasing an annual withdrawal rate by 2% or more every year to make up for how much you’re losing due to increased prices over time.
Rental properties may be a lucrative investment because rents tend to rise along with inflation. Furthermore, since the fixed-rate mortgage payments remain unchanged, rental profits can grow faster than both rent and inflation rates over time!
The future of retirement is uncertain, and inflation makes it even more so. There are many factors to consider when planning for a comfortable life in your later years.
Inflation can make the cost of everything grow exponentially over time; this means that if you want to live comfortably during retirement, then you need to invest now with an eye on protecting against inflation’s effects.
But have you ever considered that early retirees might be able to work again if they wanted? For a person who retires at 40, the decision is theirs. They can stay retired or get back into the workforce two years later and start earning an income again.
A person who retires at 70 may find it more difficult because of their age but still has some options – they could always try working in something like retail for part-time hours so as not to risk losing everything all over again!
Losing your compounding benefits: When you retire, the money that usually flows in starts flowing out. You stop investing fresh money into your investments and instead start withdrawing it to cover bills. Withdrawing from an investment means no more compounding returns while living off of it leaves less for future generations to inherit because there are fewer years left before retirement age when they will need their own funds.
When you retire, one flow turns into another with negative consequences: now the cash coming in stops being invested and becomes withdrawn by retirees as income rather than reinvested; this has two major impacts – a reduction on potential earnings due to not having any new capital going back into stocks or bonds; additionally, those receiving these withdrawals have much less time until retirement themselves which can lead them down the same path.
The power of compounding is not to be underestimated, and the results can take years before they are felt. Imagine two people who both start working at age 22; one invests $10,000 per year every single year while the other saves nothing-both retire at 65 after 40 total investing years:
One person has invested a whopping $400k over their lifetime ($40k x 12) which equates to an impressive retirement nest egg valued on average between 1.5 million dollars with dividend reinvesting OR 2 million without it!
The second individual will have saved just half that amount– only about $200K in savings during those same forty periods totaling around 200 thousand less than his more motivated counterpart when he/she retires from work!
One of them works a traditional 45-year career and retires at age 67. At the 10% average annual return, they retire with an impressive $7 million dollars in retirement savings!
The other retires at 42. With only 20 years of contributions and compounding, their nest egg is less than a tenth as large or $630,025.
Have you ever thought about how some people just want to retire early and live a modest lifestyle? It’s true that not everyone wants the same things in life.
The math in the example above does not represent how most people pursue FIRE. The reason is that these are typically high-income earners who have a lot of disposable income to invest, and use their savings rate as an alternative for compounding interest rates.
Many people picture a FIRE seeker as someone who is retired and living off of their savings. But the truth is that these individuals are creating sustainable income streams, allowing them to retire early with more money than they could have ever imagined if they had continued working for 45 years. For example, imagine an individual investing $30,000 per year or $40,000 annually (10% returns compounded) over 20 years at retirement age instead of continuing their career until age 70-75 in order to generate a higher net worth during this time period:
A better comparison would be between the traditional worker’s annual investment ($10k) versus the fire seekers’ investments after-tax earnings ($60-$80K). After twenty years at 10% average dividends, the non-retired investor is left with $480k in retirement savings versus $640K for someone who retired at age 42.
The pursuit of FIRE leads many people to change careers, working for years instead of decades. They may be happier with what they do and more creative in their work than a typical person would have been without the challenge.
Many who pursue financial independence find themselves changing career fields at some point as well– not necessarily by retiring from all forms of employment but merely switching jobs or trades that suit them better. This could make it less likely for these individuals to become bored with their job and lead them into greater happiness because this new path is closer to fulfilling dreams rather than just going through life’s motions on autopilot day after day like before when money was no object whatsoever.
FIRE is only for (whatever name/title you want to give them): It’s easy to dismiss FIRE as something that only other people can attain because then you don’t have to re-evaluate your own spending and financial goals. It goes something like this:
The realization of the American dream, a big house in the suburbs with two cars or more for each family member – it’s never been difficult for many Americans. But what if we’re not meant to be working our lives away at jobs just so we can afford these things? What if there is an alternative way out of debt without sacrificing all those comforts?
- Only people with six-digit salaries can afford to reach FIRE
- Only single people can reach FIRE
- Only married people can reach FIRE
- Only people without kids can reach FIRE
This is nothing new. People have been using excuses for centuries to justify why they are not able to save up money or get out of debt.
It’s impossible due to external factors such as their occupation, the economy, and inflation rates. They don’t want it bad enough because there’s no “realistic” way that you can do so anyways without any effort on your part. Their excuse always boils down to a single justification pointing at some other factor outside of themselves.
Whether you’re married, single, have kids, or don’t have them – each status has its advantages and disadvantages for reaching FIRE. Having two incomes can help but only if your spouse is equally committed to financial independence. And many families live on a single income!
As soon as I stopped pointing to all the external reasons why my life was going downhill and realized that it’s just because of decisions that I make for myself, things got really freeing. At first, when you realize this is your own fault it’s terrifying but in a good way-it opens up possibilities instead of closing them off like blaming other people does.
You’re behind the wheel of your own life. You get to choose where you go and how fast you get there, but that doesn’t mean it will be smooth sailing all along. Sometimes a bump or two is inevitable, so don’t let them knock out any sense of self-worth; just power through adversity with an unstoppable force!
I live by the words Grit, Mercy, and Grace, they are powerful words to live by but very important.
The fear of running out of money: It’s never too early to start saving for retirement, even if you are just starting your career. Saving a little bit each week can make it easier on yourself when the time comes and you need that nest egg before reaching 30 years old or 80years-old
Whether we retire at age 30 or 80 there is always the risk of running out of money because people don’t save enough while working their jobs. It’s important to set up a savings plan now whether it’s 10% per paycheck from work OR putting aside $10 every Friday night into your own personal account in order to build wealth over time!
Most retirees live in retirement for a more extended period of time than they did as employed persons, and this means that the majority of investments should be made with income generation or assets preservation interests.
The most important thing to think about when investing is what sort of investment will keep your money safe while also providing you with revenue.
Investments like rental properties and dividend-paying stocks are great because there’s no need to sell them off after a certain amount has accumulated; instead, these investments can provide ongoing cash flow without any additional action on behalf of the investor.
Unfortunately, though stock returns come from price growth only (meaning if prices go down then so do gains), which makes it difficult over long periods where market volatility increases significantly every few years – especially during a recession.
Investments like bonds are a good option because the interest rates on these investments fluctuate over time with changes to inflation levels, and this is what provides income for you as an investor while also protecting your money from market volatility.
What percentage can you sell off without worrying about running out of money? The unsatisfying answer is “It depends,” but the traditional answer is that at a 4% withdrawal rate, your portfolio will last at least 30 years. At this rate and with no other withdrawals or investments made to replace those taken from it within its lifespan – which should be one’s goal when planning for retirement in any case- an individual could withdraw $4 per month ($480 annually) as long as they had more than $51000 invested originally.
Lower withdrawal rates leave your nest egg intact longer, which means that if you want to retire early, you need more money saved. It’s hardly rocket science, but what is surprising is that you don’t have to lower the withdrawal rate by much for your nest egg to last indefinitely.
As the stock market fluctuates, there are many strategies to save money so you can live a comfortable life in retirement. One strategy is knowing how much of your portfolio needs to be withdrawn yearly and what safety net it should have. The 3-5% rule has been shown historically as being appropriate for one’s nest egg while still maintaining an adequate amount on hand.
According to historical data, people need roughly 3%-5% of their investment accounts per year in order not to find themselves living paycheck-to-paycheck at any time during retirement without resorting back into financial risk by taking more than that percentage out each year (or less if they want). This will allow them also preserve assets exponentially over time because some years may do better than others, and they’ll still have enough saved to keep them from going into debt.
It’s no surprise that running out of money is a risk for retirees, but it can be more daunting at an earlier age. Though the common wisdom might say to start saving as soon as possible so you have enough when your time comes, starting early doesn’t guarantee success either!
Those who retire before the traditional retirement age need to give themselves even more forethought into how much they’ll need and what their plan will entail because chances are good that if anything goes wrong with this equation, there won’t be any coming back from it.
Not budgeting for medical needs: People in their 40s are fortunate to have relatively low medical expenses. Most 80-year-olds, on the other hand, will spend a lot of money that year on things like hospitals and prescription medication.
The vast majority of people who hit age forty don’t experience significant changes from an insurance perspective – they’re still covered by employer-sponsored health care or Medicaid if they qualify for it (likely) — but not so with those who reach eighty years old! There’s no doubt about it: most folks at this later stage suffer some sort of illness/injury each year which leads to high costs associated with hospital stays and prescriptions; meaning many older adults need supplemental help from either Medicare or financial assistance programs such as Social Security Income Insurance Programs.
As you get older your medical needs increase, making it more difficult to balance the costs of retirement.
While some people may be lucky enough to retire in their 60s and live a long healthy life without much need for expensive treatment or medication, others might have trouble just staying alive until they are eligible for Medicare at 65 years old!
The expense of living longer is going up as we age because our health deteriorates over time so that by when most adults turn 70 there will only be 1 person left out of 10 with no chronic illness (54% – U.S.).
Depending on how well prepared financially one has been before retiring trying to make ends meet can become increasingly challenging every day: not being able to work is bad but having less money than you need in retirement is worse.
If you want to retire at the traditional retirement age, it is important that you build up your Medicare benefits. In order to qualify for these benefits and lessen your health care costs when they’re needed most, make sure that you are enrolled in Medicare before reaching 65 years old.
Additionally, if Social Security isn’t available because of a lack of employment history with long enough gaps or periods without work then again enlisting early on will save money down the road by ensuring all qualifications have been met so as not to be required later on.
You know that you are going to be spending more on your healthcare after retirement, but did you also know that many people plan for the increased costs by buying Medicare Advantage plans? This is an important consideration when budgeting.
When you reach financial independence, the hardest decisions are not about work; they’re about what to do with your free time. Many people who have achieved their goal take a part-time job that offers health insurance just so they can stay active and social in retirement.
Not being in the present: You may be living for your future, but you’ll never get there if you keep putting it off. What is the point of waiting to enjoy the good things in life?
You can make tomorrow brighter by enjoying today more fully; don’t let your future self stop you from living life today.
All of us will have to walk the fine line between planning for tomorrow and living in our moments. However, when we put so much time into building passive income today, it can be easy to forget about everything that is happening right now.
Living in the present is using mindfulness, not money. Frugality and a high savings rate don’t mean sacrificing your life to save for retirement or some other goal because living in the moment requires focus rather than wealth.
Some people find happiness in spending their whole paycheck, but the point of FIRE is freedom and intentionality. If you’re not happy with frugal living, then fire probably isn’t for you!
Living lean doesn’t have to mean doing without. You can save up and buy yourself the things you want now so that later when your frugality pays off in financial independence, you’ll be able to afford whatever it is that would make life more enjoyable.
How to Reach FIRE
If you want to retire early and enjoy financial independence, then how can you do it?
For many of us who are eager for the day we no longer have a boss or commute time in our lives, there is an abundance of resources available that will help maximize our potential.
Set your targets; Spending, High Savings Rate, and Passive Income: In order to achieve your goals, you need a target and the minimum amount of income needed. After achieving financial independence, it’s always an option to keep working if that is what you want or choose other avenues like investing in stocks for passive income.
If you want to reach your goal of $6,000 per month in passive income then get started by coming up with a plan. For example: setting the hours for work that will produce this amount or figuring out what exactly is needed to generate these funds and how long it would take.
The gap between what you earn and spend is one of the most critical numbers for building wealth. You want to do your best to not only save more than you are spending but also be mindful of how much money goes out the door every day. Find ways that will help keep your finances where they need to be so that a FIRE plan can become reality!
It’s not always easy to save money, but we can all agree that the first step is being aware of how much you spend on your day-to-day expenses. The average American spends about 70% of their budget on three things: housing, transportation, and food – so these are great places to start if you’re looking for some ways to cut down costs.
In particular, there are three types of daily expenditures that make up roughly 70% (according to Bureau Labor Statistics) or Americans’ budgets–housing/transportation/food. These items offer an opportunity for savings because they comprise a large percentage of many people’s lives; which means it won’t be hard getting rid of them altogether!
It is not easy to save up for early retirement. You have to be disciplined and focused on saving as much of your income into a savings account or investment portfolio every year, but the reward you will get at the end can make it worth all those sacrifices!
The more you earn, the better off your future will be. Start working on getting that promotion or raise so you can afford all the things in life worth pursuing: home of our own, nice clothes and shoes for ourselves and loved ones, vacations to exotic destinations like we always wanted when growing up–the possibilities are endless!
And income potential doesn’t stop with full-time jobs; consider side gigs as well if there’s time. Even following an unconventional hobby could potentially turn into money-making opportunities down the road.
The trick is to avoid lifestyle inflation and not spend more just because you start earning more. All that additional income should go straight into investments, but if there are any leftovers after all bills have been paid then they can be spent on something of your choice like clothes or going out with friends for the evening.
However, it’s important to remember this isn’t a free pass to blow money- when investing always look at what will make the most profit in order to get ahead!
Invest in passive income: I like rental properties for their high-yield income and stocks because they are an excellent way to diversify your portfolio. One enormous advantage of rentals is that you can leverage other people’s money to start building a property empire, which will be sure to provide some long-term growth as well!
You take the $25,000 and use it as a down payment to buy an old house for your rental property. You cover closing costs with seller concessions on top of the purchase price and finance renovations in cash from hard money loans. At completion, you refinance into a cheaper long-term mortgage so that when all is said and done, you get back every penny without any interest charges!
Real estate investing can be a great way to generate passive income without any cash outlay. You buy property, fix it up for resale and rent the finished product back out while you refinance your loan at higher rates over time. This BRRRR process has an acronym in the real-estate world: Buy, Renovate, Rent Repeat!
Know and understand your FI ratio: You can’t just save your way to retirement. You need a plan that will actually get you there, which starts with the FI ratio: it’s calculated by dividing your monthly expenses (including debt repayments) by how much passive income or savings you have each month. As they say in business, if what gets measured gets done–then track this number because as soon as it hits 100%, then voilà!
The FIRE ratio is a simple calculation that measures how much you have saved up for retirement. For example, if your monthly expenses total $4,000 and you currently have $400 coming in from investments every month then the equation becomes 10% which means there are only enough resources to live on approximately 1/10 of what they need each year before retiring.
This can be frightening but it’s also an opportunity- any extra money will help make this number climb higher until one day when we’ll reach our goal!
When your FIRE ratio reaches 100%, pop the champagne cork because you’re financially independent. You can retire and never work another day if you like. Or you can keep working, either in your current career or a fun, low-stress second career.
I love the idea of measuring my net worth. For me, it’s largely about vanity because I know that for financial independence and security, your net worth is only as valuable as its ability to generate ongoing income for you.
Growing your investments in the early strategy for achieving financial independence. However, as you near FIRE and start to worry more about short-term fluctuations in market performance, it’s important that you maintain a diverse portfolio of different types of assets which can help buffer any losses from investment volatility.
Keep an eye on asset allocation when pursuing FI! Your investing style should focus on growth at first but will need to change once closer to retirement because then risks become more unpredictable with time left until full stop employment income ceases (FIRE) and longer periods between highs and lows during volatile markets may not be desirable or feasible anymore if we want our nest egg balance last long enough without dipping below 10%.
So begin by focusing mostly on stocks towards the beginning stages while gradually shifting to more bonds and cash as you near retirement.
For some people, the stock market is a scary thing. You never know when you can make or lose money but as long as it doesn’t happen while you’re working then it’s not going to affect anything for now at least. The only time that this becomes an issue is if you’re retiring and have no income coming in anymore because of stocks dropping 20%. It’s important to always be prepared for those types of things.
When you retire early, don’t expect much help from the government. You won’t qualify for many benefits until you’re 65+, if at all!
Your Social Security benefits are rapidly declining- and so is the government’s ability to pay for them. The Senior Citizens Association predicts that by 2020, your purchasing power will have lost 30%. And in 2018, the SSA admitted it was on track to insolvency because of its spending deficit. https://www.ssa.gov/oact/tr/2018/tr2018.pdf
Since you are retired, the best route for health insurance is to exercise your options as a self-employed individual.
A 50%, 60%, or 70% savings rate is not easy. It’s not fun to drive a 10-year-old beater while your friends drive brand new BMWs, but it could make the difference between being able to retire early and spending most of your paycheck now.
The old adage that there’s no wrong answer is true, but those willing to be fiscally responsible today get the opportunity tomorrow.
Sure we can both play our own games in this world, but it all matters how you want to spend your time on Earth–grinding away at work or having the freedom to choose?
Financial independence is about becoming financially secure so that you can live without worry. There are many ways to reach financial independence, but the key is figuring out what your goals are and set up a plan based on those desired outcomes. It’s also important to have a backup plan in case things don’t work out as planned.
Regardless of how you decide to get there, it’s always good to be prepared for anything life throws your way!
If this sounds like something you want more information on, then check our blog post “Benefits of FIRE”.