Financial freedom is the dream of every human being. Many people work hard all their lives to only retire at the age of 60s to finally enjoy all their lives earnings. But, today, we are introducing you to a concept, the advocates of which believe that you can reach financial independence at an earlier age to retire as early as in your 40s or 30s.
It is not some pyramid scheme. It is a belief that started in the 90s and is now picking up with millennials who want to retire early from their jobs with enough savings to cover their expenses after retirement.
The concept is called FIRE — “Financial Independence, Retire Early”. This concept advocates bringing vital changes in your lifestyle earlier to save and invest more of your income (up to 70%) to retire early.
Let’s explore FIRE and whether it is really something that you can do on your own without the help of any Financial Planner.
What Is FIRE — “Financial Independence, Retire Early “ Concept?
The idea of FIRE comes from a book by Vicki Robin and Joe Dominguez. In recent years, the idea quickly paced when many people started doing podcasts and blogs around it. FIRE enthusiasts believe to break the traditional system of retiring in your 60s and achieve financial independence earlier in life. FIRE enthusiasts propose to save enough at your young age to retire as early as in your 40s and 30s. Your saved amount should cover your expenses after retirement.
When you reach financial independence at an early age, and work becomes optional, you can concentrate on other life pursuits and devote more time to your family.
According to the FIRE disciples, you can retire after you have accumulated your “FIRE number”. The FIRE number is nothing but the total value of your savings and investments sufficient to cover your expenses after retirement.
Generally, the rule of thumb here is, your saving goal should follow the 4%-yearly withdrawal rule. In other words, you should have saved amount 25 times your expected annual spending.
So, for example, if you need $50,000 per year, your savings should be $1.25 million before you retire.
It is not necessary for you to have an income in six digits to be able to achieve this dream. Anybody can work this system out if they save more, invest in a good portfolio for more returns, and have a simple lifestyle.
It is important to note that your FIRE number will change if your expenses change.
Some FIRE Variations
There are three FIRE variations. Starting with FAT FIRE, which is an easy-going FIRE system. This system works with people with higher salaries and investment plans. So, these people can get away with saving more than the average worker without compromising their lifestyle.
On the other hand, Lean FIRE requires you to adopt a minimalistic lifestyle with extreme savings to accumulate the FIRE number for retirement.
Lastly, there is a Barista FIRE for people who retired from their 9 to 5 jobs. These people use savings and work part-time to maintain a minimalistic lifestyle.
Tips To Retire Early
Saving more for a better future is where it all starts. The FIRE enthusiasts think that we need to save up to 70% of our income to reach the FIRE number. Now, you can save this much money quicker if you make some compromises in your lifestyle.
Let go of consumerism and adopt a simple lifestyle to save more for later life. Similarly, try to invest your money smartly, such as in low-cost index funds, real estate, rental property, stock, shares, or whatever you know can work for you.
Investment is the key if you do not want your money eroded due to inflation.
It is always a good idea to do some side hustles along your 9 to 5 job to speed up the accumulation of savings to achieve financial independence. You can even start a part-time job.
Lastly, it all boils down to how you spend your money. You have to make sacrifices if you want financial independence. Whatever sacrifices it takes, from brewing coffee at home and not making a trip to Starbucks to fixing a leaky faucet yourself to save a few bucks. Know you have to be thrifty and frugal to achieve your dreams.
Pay off your mortgage earlier, do not buy expensive cars every year, avoid expensive meals, vacations, and branded clothing, and do whatever it takes to navigate your way to financial independence.
FIRE Is for Everyone
Contrary to the common notion that calls FIRE to be the system of people with heavy income, FIRE is for everyone. Anyone with a dream to gain financial independence earlier in life can implement the FIRE ideology in their lives.
Remember, you do not have to retire after accumulating enough savings. You can always work on something you have loved to be able to create and enjoy the life you want.
FIRE only gives you discipline and teaches you the basics to realize your dreams faster.
