In a world with stagnant wages and rising cost of living, many people are looking for a way out of the rat race. This is why radical investment strategies and risky business ventures are so popular.
Believe it or not, there is actually a reliable way to achieve financial freedom—but it’s far from a “get rich quick” plan. Financial Independence, Retired Early (FIRE) is an increasingly popular strategy to build your ideal future without the hassle of daily living. Here’s what you need to know about how it works.
What is fire movement?
The fire movement encourages consumers to aggressively save and invest when they are young to retire decades earlier than usual. There is no specific FIRE timeline; Which depends on your particular goals and financial situation. Many people who work toward FIRE try to retire in their 30s and 40s.
However, the FIRE movement isn’t always about retiring early. Some people can reach their FIRE goal and keep working, because they enjoy what they do or because they aren’t sure how to take the next step. For them, FIRE provides the peace of mind that comes with not being completely dependent on your work.
Some people choose to work towards FIRE so they can take a break, change careers or become digital nomads. Others want to reach FIRE so that every extra penny they earn becomes an inheritance they leave behind.
type of fire
There is no one way to reach FIRE. In fact, there are several schools of thought. Here are the most common types of FIREs and how they stack up:
Those who don’t want to worry about budget limitations when they retire can opt for Fat Fire, where your investments are much higher than your annual cost of living. Fat Fire may be suitable for those who do not believe in pinching pennies and want to enjoy the luxuries life has to offer.
Because health insurance is one of the biggest expenses for people who do not have access to an employer plan, some FIRE devotees will retire from their regular jobs and work in a company that provides health insurance to part-time employees. like Starbucks. It is known as Barista FI.
Coast FI is a financial independence movement where the goal is to invest enough that you can stop making retirement contributions. Once you reach Coast FI, you can either continue to contribute towards retiring early or focus your resources on other goals such as starting a business, contributing to a child’s college education, Traveling abroad etc.
The Slow FI movement believes in reaching financial freedom, but not at the crushing pace of traditional FIRE. Slow FI is a more conservative route, avoiding the big sacrifices that come with traditional FIRE strategies.
how to retire early
reduce your expenses
If you are trying to retire early, one of the most important things is to reduce your expenses. This will free up more money for investment and savings. Track your expenses with Budget and find the balance between saving for fire and continuing to enjoy your life.
increase your income
While reducing your expenses is the key to achieving FIRE, increasing your income is another important aspect. There is a limit to how much you can save by being frugal, but there is no limit to how much you can earn.
Increasing your income can include asking for a raise, switching industries, starting a side hustle and more.
understand your numbers
One of the main reasons people fail to meet their FIRE goals is because they don’t know exactly how much they’re saving, how much they’re spending, and how much they’ll need to retire early.
Start by tracking your expenses to get an average of how much you typically spend in a month. It’s important to be realistic — not optimistic, when you calculate your average expenses. To get a baseline estimate of how much you need to save, use one of the many FIRE calculators.
You have to input how much you spend annually, how much you save annually, when you expect to retire and how much you have currently saved. The calculator should show whether you are on track or way out of the way to meet your goals.
talk to a financial planner
Deciding to retire early is one of the biggest financial decisions you can make. And before you take that leap, you should talk to a third party to make sure you’ve thought everything through.
A financial planner can point out potential problems with your plan, such as whether you can afford hefty health insurance premiums or an annual property tax increase. They can also recommend the best types of investment accounts to open and reduce your tax liability.
create automatic save
Saving money is difficult, but withdrawing money early is even more difficult. You can make it easier on yourself by automating your savings.
If you have a 401(k), you can increase your contribution by talking to your HR or payroll department. The money will automatically go out of your salary. If you receive an increase, your 401(k) contribution will automatically increase as well.
If you invest in an IRA, you must make automatic contributions through the investment company. Determine how much you can automatically save each month.
When working toward FIRE, it can be difficult to find like-minded people near you. That’s why it helps to get inspiration from external sources such as FIRE blogs, podcasts and forums. Some popular resources include the Choose FI Podcast, the Mad Fantist blog, and the 1500 Days to Freedom blog.
Some of these communities even have local meetups where you can spend time with real people who share your financial priorities and dreams for the future.
Financial Independence, Retired Early (FIRE) is a popular strategy to build your ideal future. Here’s what you need to know.