They may seem ambitious, but many folks worldwide are making drastic lifestyle adjustments while increasing their investments and savings to attain financial independence within a few years of working. The idea of depending on an income until age 65 or so to pay the bills and accumulate enough funds for a comfortable retirement is scary to them.
For many, the ultimate goal is to retire as soon as possible. This is the reason the FIRE (financial independence, retire early) movement has been trending.
Financial Independence, Retire Early
FIRE is a concept that guides individuals to attain financial freedom early on in their lives instead of depending on a day job until the traditional retirement age—members of this movement plan to retire early, if possible in their 30s.
Their main strategy entails:
- Making lifestyle sacrifices – This means doing without luxuries or life comforts, such as eating out. However, there are no strict rules about what you may or may not give up in life. You can set your own goals based on your financial situation and tolerance for sacrifice.
- Saving a lot – The objective of frugal living is to save as much as possible within a short time, usually within 10 years or less. Some FIRE members are saving as much as 50 percent of their income or even more.
- Investing – Invest your savings to grow your wealth and attain financial independence in a few years.
That said, this movement isn’t all about making extreme lifestyle sacrifices. You can still be a FIRE adherent while living comfortably by making smart choices about buying, saving, and investing.
How to Join the FIRE Movement
To get started on your FIRE plan, start implementing the core principles of spending less, saving, and investing. Here are the steps to take toward financial independence and early retirement:
Set Your Goals
The idea is to enjoy early retirement without depleting your savings and income from your investments. As you strategize to achieve financial independence in your 30s or 40s, you may incorporate the 4 percent withdrawal rule. In other words, save and create enough wealth to be able to live off 4 percent of your total investment throughout retirement.
Cut Your Spending
Take your time to decide on lifestyle comforts you’re willing to give up. Some FIRE members set their spending to 50 percent or less of their salary or earnings to save and invest for early retirement. This decision is all up to you, but some viable sacrifices include:
- Carpooling to work
- Eating out less
- Buying used cars
- Not buying designer wear
- Ditching high-end smartphones
If you’re following the 4 percent rule, you’ll need to accumulate 25 times the amount of money you spend per year. Say your annual expenses total $60,000. To achieve FIRE, you’ll need to save and grow your wealth to 25 x $60,000, which is $1,500,000. Maxing out your retirement contributions can help with this objective.
When it comes to 401(k), Roth IRA, and HSA accounts, ensure to remit the maximum possible amounts to increase your savings.
Choose an Investment Vehicle
Don’t rely on retirement savings accounts alone—tap into taxable investments too. Property and stocks are excellent options to grow wealth and attain financial freedom.
Start Paying Off Debt
Avoid or at least pay off your debts. Heavy financial liabilities aren’t good for your early retirement plan.
Finding Your Flame
Not everyone pursues the FIRE movement for the same reasons. Maybe you just want to retire young and still live a comfortable life.
Besides learning how to retire early, many FIRE adherents are perfecting the art of saving money for what matters most. The movement doesn’t force anyone to live a minimalist life, though.
Or you may just want to retire early for the freedom to do the things you’re most passionate about, such as traveling. To many folks, that life can be more fulfilling than a lifelong commitment to corporate America.
Anybody seeking to live minimally and avoid commercialization and materialism will probably be at home with FIRE.
Is It Worth It?
FIRE can work for you if you strategize well and understand the sacrifices and lifestyle choices that come with it. To some people, spending 60 years in retirement without any income isn’t a risk worth taking, however.
Firing to Financial Freedom
Regardless of your financial background, you can incorporate key FIRE ideals to attain financial freedom early in life. The philosophy encourages you to start thinking about early retirement and planning for a comfortable future. It can work for you if you make prudent choices about how much to spend, save, and invest while you’re younger.