There is more to life than work and yet we spend most of our lives working. Many people fail to realize this in today’s modern day and age. The standard cycle of our lives includes birth, school, work, retirement, and then death. Straying from this process seems to bring on shame and societal rejection, but there is a solution! It is the path to Financial Independence Retire Early movement.
Some of us cling to work as if our whole lives depend on it. Poverty drives people to “work until you drop,” and the fear of not earning enough income to take care of our families is stifling. Unfortunately, this financial situation holds most people down for most of their lives, requiring them to work for more than the standard eight hours each day to earn money from a job they hate, causing many to ponder “What is the point?” Still, this is the reality for most people in order to survive.
The Path to Financial Independence Retire Early (FIRE) movement has gained many followers as it spread through mainstream media in recent years and garnered questions such as:
“Could a person really retire that early?”
“How can I retire in my 30’s with $1,000,000 in the bank? Is that even possible?”
“Is this the answer to the redemption of life outside of work?”
The Financial Independence Retire Early movement is a concept going against the status quo, and it is spreading like wildfire. But first, what is it?
What is FIRE?
Financial Independence Retire Early (FIRE) is a movement where its community practices prudence and competence in applying their efforts to achieve financial independence. For the majority of those who have achieved FIRE, early retirement is optional.
In most cases, increasing one’s savings rate allows for the choice to retire much earlier than traditional retirement, but how early? Whether FIRE is achieved in the 30’s or even 20’s, anyone can do it. Some take longer and others choose sooner.
The FIRE movement is as simple as lifestyle optimization. Banks and investment plans offer hundreds of tips on how to maximize one’s money, but it really comes down to life goals. For example, if someone dreams of traveling the world, they should minimize expenditure on things they do not need and save for the trip. Keep those credit card rewards for times of urgent need or airline tickets. Another goal may be to have one parent stay home and raise children. Many families afford this by curbing their spending on fancy things like cars or other embellishments.
But there is no pressure to figure out one’s whole life plan in one sitting. Financial Independence Retire Early promotes freedom and choice; whether it may be quitting work or just switching careers. Going back to school and starting a business are options as well. The FIRE movement equips everyone with the freedom to choose how they want to spend their time.
How Can the Movement Benefit Its Members?
Financial advisors recommend early retirees with income in a 401(k) or IRA to save approximately 10-15% of their income, but the FIRE movement promotes putting away 50% of income into savings (depending on an individual’s specific retirement vehicle limitations). This 50% savings rate allows most people to retire after about 16 years of work. Check out Mr. Money Mustache’s blog post about this here.
This is exciting news, but before you adjust your financial goals, you must first learn how to do Financial Independence Retire Early the right way.
The PATH to Financial Independence Retire Early
There are a variety of different paths to achieve financial independence and early retirement. In fact, most people choose to pursue FIRE because of its easy accessibility. FIRE is adaptable to almost everyone’s financial situation and takes only a bit of strategic thinking, making it an excellent system catering to people of all walks of life.
Because of the freedom and choice it grants, there is no one way to achieve FIRE. Each person has the full authority to choose which plan works best for their individual needs and lifestyles. However, below are a few money-saving ventures many experiences on their journey to sure FIRE.
A man with $10 and no debt is more wealthy than a man with $100 and debt. Your Financial Independence Retire Early journey requires you to pay off your debts in order to build a resourceful wealth empire. Not only will this mean assets for your retirement, but it also liberates you from the worries of being in debt.
The one exception to this is a low-interest mortgage on investment properties.
Doing this saves every extra penny each month, which adds up to financial independence and early retirement. Extreme frugality is the key here because a lack of liabilities lessens outflow and paves the way for more savings, accelerating down the road to financial independence.
Inflation and low income may lead to the day when you need more than your savings. Consider opportunities or side hustles to add to your monthly income and assist you in achieving your goals faster.
Math is a powerful ally when it is working for you, but it is relentless and unforgiving when it works against you. Do not blindly chase after your goals without forming a concrete plan. Calculating your savings rate beforehand will give you a more solid comprehension of your plan and goals. Keep note and track your progress as well to see where you need to realign and adjust.
There are no opportunities to waste here. Many people do not take the time to understand basic tax laws. Financial independents and early retirees do not overpay taxes. Take specific measures to minimize tax burdens and legally maximize your tax-advantaged accounts.
FIREballs invest in low-expense ratio index funds and take advantage of compounding. Invest a few years earlier and eliminate investment fees of 1-2% to produce dramatically different outcomes over your lifetime. Real estate rentals are also an investment. Organize your assets to initiate your wealth collection and FIRE aspirations.
The growing trend in the FIRE community of house and travel hacking not only reduces housing costs but is another way to earn money out of essential commodities. Housing is the largest lifelong expense, but house hacking is a practical strategy for early retirement aspirants. Read more about that by FIRE blogger Paula Pant.
Travel hacking encourages FIRE community members to pay off credit cards monthly in order to gain the rewards and sign-up bonuses without the debt.
The rising fame of the Financial Independence Retire Early movement subsequently leads to more demand. Therefore, making a career out of FIRE is only one of the many opportunities you can take advantage of.
FIRE in the Hole
The FIRE movement promotes life outside of work, but do not let yourself lose sight of the present in your haste to achieve the future. Working double shifts or overtime is not the goal and will not address the issue. Look for jobs or side hustles that not only brings in more income but also grants you the freedom and choices your lifestyle demands.
Working as an insurance agent or consultant is a great example. You are your own boss and earn residual or recurring income. Insurance agents help people choose policies that best suit their needs and resources, and every year the policies you sold are renewed, you continue to get paid. It works the same as royalties with actors or musicians. The nice thing about this career is it can be full-time, part-time, or just some time with considerable freedom compared to other occupations. Some agents are independent and others work for insurance agencies, while still others are captive agents from insurance carriers. Becoming an agent is one of the fastest ways to achieve financial independence because there is no ceiling on how much you can make and income continues for work done in the past. This was my path to financial independence; I was able to build a six-figure renewal/recurring income in less than 14 months!
The number one rule to achieving financial independence is you must create a margin between what you earn and what you spend, and then invest the difference wisely to produce additional revenue or income. This gets you out of debt, helps you make more money, save more, invest better, and retire sooner. It is the most common path to financial independence retire early.
What Is FIRE?
Financial Independence, Retire Early, or FIRE for short, is a movement wherein its community practices prudence and competence. They execute this with applied efforts to achieve financial independence. For the majority, early retirement is optional.
For most cases, having your savings rate increased can open up a choice for you to be able to retire much earlier than traditional retirement. This discovery is part of the reason why a lot of us rally for this FIRE movement. The question here now is “How early?” Whether you are in your 30s or even 20s, anyone can definitely achieve it. Some may take longer and some may take sooner.
To simplify the FIRE movement, it’s as simple as lifestyle optimization. Banks and investment plans can give you hundreds upon hundreds of tips on how you can maximize your money’s worth. But at the end of the day, it will all boil down to your goals in life.
If you dream of traveling around the world, you should minimize your expenditure on things that you don’t really need and save up for the trip instead. Keep those credit card rewards for times of urgent need, or also known as flight tickets.
You could also benefit from holding back from spending too much on fancy cars or other embellishments. When the time comes, your boosted savings rate will allow you to stay peacefully at home as you watch your children growing up. Not only will you be more rested and get to spend more time with your family; you also grant your children the feeling of being wanted and loved by their parents.
Nonetheless, there’s no pressure in formulating your whole life’s plans in one sitting. You may be torn between wanting to be a globetrotter or a home-settler for now, but it doesn’t mean that you would have to hold back the procedure for any longer. At the end of the day, going Financial Independence, Retire Early promotes freedom and choice. You have the freedom to choose if you want to stop working, or just want to switch careers. Going back to school and starting a business are options as well. The FIRE movement equips you with the freedom to choose how you want to spend your time.
How Can the Movement Benefit Its Members?
Early retirees didn’t jump into the bandwagon for nothing. That financial independence and retiring early is a great idea, and everyone is in unison in reaching it. If your income is in a 401(k) or IRA, then most financial advisors would recommend your savings percentage to be at least 10-15. Meanwhile, the FIRE movement will promote to have 50% of your income for your savings. Limitations in certain retirement vehicles should be kept in mind, though. You will only need basic mathematics to know that investing 50% of your income would reward you with a big return soon enough. This savings rate will allow you to retire in about 16 years. Mr Money Mustache wrote a simple blog about it. Click here.
Such numbers are enough to spark aspirations of a retirement plan that will kick off as early as 25 years from now. But before you proceed to readjust your financial goals, you must learn first how to do Financial Independence, Retire Early the right way.
PATH TO Financial Independence Retire Early
One can tackle a variety of different paths on their way to financial independence and early retirement. In fact, among the reasons why people choose to pursue this course is the accessibility of its system. The path to FIRE was designed for easy adaptation and a touch of strategic thinking, making it an excellent system that could cater to people of all walks of life. Truth be told, there is no one way to achieve FIRE. That is the extent of the freedom and choice that it grants; you have the full authority to choose which plan will work best for you and your lifestyle.
Here are some of the list of things that you could do for your money-saving ventures towards your journey to sure FIRE.
- Break up with your debts.
A man who has 10 dollars and no debt is richer than a man who has $100 and has debt. Likewise, your relationship with obligations is not something that you would want to last if you would embark to your Financial Independence Retire Early journey. Break up with your debts, and only then will you be able to build a resourceful wealth empire. Not only will you get enough assets for your retirement, but you will also liberate yourself from the worries of having to pay your debts.
An exception to this could be a mortgage on investment property of low-interest. Either help yourself build your wealth in that way or avoid the debt entirely, there should be no middle ground.
- Cut on unnecessary expenditures.
The surest way to shorten your travel time towards financial independence is to cut down on any excessive expenditure. Through this, you can save more extra penny each month. This saved money will then add up to the numbers that you need to hit for your financial independence and early retirement. Extreme frugality is the key, and it’s so useful to the point that it approaches the goal from both sides.
First, you eliminate your balances due, and then you reduce your expenses. In other words, your lack of liabilities and lessened outflow would pave the way for more savings – a swift acceleration for the road to financial independence and later on, early retirement.
- Multiply your income.
Just like any other goals, the FIRE movement also has challenges along the way. Inflation and low income are some of the examples and could get worse when combined. Besides, you can only cut as many expenses, and there may come a day when you will need more than your savings plan could allow. This doesn’t mean that you have to work day and night. Consider opportunities or side hustles that can assist you in achieving your goals faster. That way, you could also efficiently work around the life that you want to build for yourself.
- Compute your savings rate. Math is a powerful ally when it is working for you. It is relentless and unforgiving when it works against you.
You can’t go blindly chasing after your goals without a concrete plan. Moreover, the combined power of your reduced outflow and increased inflow will result in a higher savings rate – a key component in your goal to reach FIRE. Calculating your savings rate beforehand will give you a more solid comprehension of your plan and goals and will keep you on track of your progress as well. It will be like you are taking your personal finance by the reigns.
- Exploit your tax advantages.
There are no opportunities to waste here. Most people don’t take the time to gain a basic understanding of tax laws. Financial independents and early retirees have their head in the game and won’t give in to overpaying taxes. Specific measures to minimize tax burdens can legally maximize your tax-advantaged accounts. In one way, you get ahead of your game and get a bit closer to your goal at the same time whereas lack of knowledge results in paying tens or even hundreds of thousands of dollars in unnecessary taxation over a lifetime.
The FIREballs have only one approach on this – low-expense ratio index funds investing. The power of compounding is one of the best inventions ever. Invest a few years earlier or eliminating investment fees of “only” one or two percent produces drastically different outcomes over your lifetime.
Your real estate rental is inclusion to this portion of your investment file. Such organization of your assets is another excellent way for you to initiate your wealth collection and FIRE aspirations.
- Establish retire hacks.
Sometimes, you just got to be a little wise for your own benefit, like in house and travel hacking. This growing trend in the FIRE community will not only reduce your housing costs. It can also be another good way for you to earn money out of your own essential commodity. Indeed, housing counts as the largest expense that most Americans spend on throughout their life, making house hacking a practical strategy for early retirement aspirants. Read more about house hacking by FIRE blogger: Paula Pant.
This trick has a counterpart for traveling due to its being a big part of the FIRE movement. Businesses exploit the fact that people love to travel, provoking them to do so in pursuit of more sales for their services. Meanwhile, the travel hacks dictate that FIRE community members spend at the expense of paying all their cards off on time. With this, they can then consume the rewards and sign-up bonuses. What’s the result? Free trips around the world!
The rising fame of the Financial Independence, Retire Early subsequently leads to more demand. Therefore, making a career out of it would just be one of the many opportunities that you can make out of the movement.
FIRE In The Hole
Back to the nature of the concept, the FIRE movement is promoting life outside of work. Nonetheless, you must not let yourself lose sight of it in your haste to achieve it in real time. Working double shifts is definitely not an option, as it won’t be able to address the issue in the first place. It would even be a complete opposition to the goal. Hence, you would need a job or side hustle that will not only gain you more income but will also grant you the freedom and choice for your life.
A good example is by working as an insurance agent or consultant wherein you are your own boss and can earn residual or recurring income. You as an insurance agent will help people choose policies that best suit their needs and resources. Every year that your insurance policy you sold stayed on the books or renewed with the same health plan or car insurance, you will continually get paid every year until they decide to cancel. It works the same as royalties with actors or musicians. Every time their music or movies are played, they’ll receive a royalty income. The nice thing about this career is, you can also work as a full-time, part time or sometime. You’ll have a considerable amount of freedom compared to other occupations. Some agents are independent and work for insurance agencies, while others are captive agents from insurance carriers. Becoming an agent is one of the fastest ways to financial independence because there’s no ceiling on how much you can make and you’ll continually get for the work you’ve done in the past. This was my path to financial independence. I was able to build a 6 figure renewal/recurring income in less than 14 months.
Your viewpoint in life must align with all the other components in your life. The number one rule to achieve financial independence is that you must create margin between what you earn and what you spend. And then invest the difference wisely to produce additionational revenue or income. Therefore, get out of debt, make more money, save more, invest better and retire sooner. This is the most common path to financial independence retire early.