FIRE = Financial Independent, Early Retire
People often say retirement isn’t about – age, but your financial capacity. Well, that’s what the F.I.R.E movement is all about. It’s proponents believe that it’s possible and ideal to retire at 30 or 40 and not necessarily waiting until you are 65.
The movement has become particularly popular amongst millennials and several other persons who are already fed up with their demanding jobs. They have gained so much popularity and have hundreds of thousands of followers.
Think about it. Wouldn’t it be nice to be able to retire in the next couple of years? You wouldn’t have to worry about going to work or waking up early to meet up appointments. More importantly, you will have time for family and friends and to travel around the world. Well, that sounds cool to me.
Let’s take a closer look at how people do it and whether it’s possible.
What Is The Fire Movement?
F.I.R.E. means Financial Independence/ early retirement. It’s a movement that propagates extreme savings and investment to allow for early retirement. Its proponents believe that by saving between 50% – 70% of one’s income for a period, you will be able to save enough to keep you through retirement.
Typically the goal is to save about 30 times their yearly expenses (about $1 million). And then quit their day jobs and go into retirement living off small withdrawals from their portfolio.
How do they do it? The proponents of F.I.R.E. do two things. They work to increase their income while lowering their expenses. The idea is to eliminate unnecessary spending to ensure they can reach their goals faster.
Variations Of Fire
There are different levels to F.I.R.E. to allow devotees to choose what they can do.
Fat FIRE: This refers to individuals with a normal lifestyle, but who saves more than a typical retirement person.
Lean FIRE: It refers to more stringent and advanced savings than the Fat FIRE.
Barista FIRE: This refers to individuals who have saved up much and have quit full employment for part-time jobs to cover their current expenses, so as not to erode their retirement funds.
Coast FIRE: This is similar to the Barista F.I.R.E. However, these individuals have successfully saved up for their retirement. But still, hold some form of part-time jobs to cover their current expenses.
Are you ready for it? FIRE can be beneficial to you whether you want to retire at 65, 30, 40, or even 50. You need a plan to save for your retirement, and F.I.R.E. is an ideal plan.
A FIRE Success Story
Here’s the story of Jeremy Schneider, who turned down a job offer from Microsoft to open up his own company Rentlinx at the age of 24.
After years of surviving on credit cards and bootstrapping it, his company turned a profit, and Schneider started paying himself a $36,000 salary. He saved $5,000 of that to an I.R.A. account.
At 34, he sold the company for seven figures and retired, with about $3 million saved up. He now spends his time flipping houses, coaching a volleyball team, and doing other leisure work.
Here’s How You Can Get Started.
Steps to achieve FIRE
Ultimately, FIRE boils down to 4 steps.
Lowering your expenses is an essential step towards ensuring financial freedom. You need to create and live by a budget to ensure strict adherence.
If you reduce $1,000 off your expenses every month, you will have more money to save and invest. Create a budget and identify areas where you can cut down costs from food to subscriptions and even outings.
However, Don’t be too extreme, so you can have enough money to carry you till the next month. Your budget should still have provision for fun and other things necessary to make life comfortable for you.
Increase Your Income
The next step after reducing your expenses is to work to increase your income. Startup a side hustle to generate additional income. You can easily earn up to $1,000 monthly as a freelancer or Uber/Lyft driver.
Also, consider starting a business. There are lots of profitable business ideas that will generate you a whole lot of profit.
Get out of Debt
The first step is to clear your debts. You have to be debt-free to start saving part of your income. Do away with credit cards, pay off your loans, and every other debt you have. Paying off debts is not an easy task – it takes time. It’s, however, pivotal not to acquire more debts within the period.
Invest In Your Retirement Account
After paying off your debts, the hard part is done. You can now start saving to your retirement account. Start by keeping aside 15% of your income every month in retirement accounts like 401(k) and Roth.
Consider maxing out your account, so you can contribute $19,000 towards 401(k) and $6,000 to an I.R.A. However, it’s important to note that you may have to pay penalties to be able to withdraw from a 401(k) or I.R.A. account.
Pay Off Your Mortgage And Save Up For Your Kid’s College Education
A shelter is a basic necessity, hence the need to ensure your mortgage is fully repaid. Speak to your lender about paying your mortgage early. Most lenders charge fees for early payment.
You also have to start saving for your kids’ college if you have kids. The money you save up will help cover their expenses and reduce the burden on your retirement savings.
Open a Taxable Account
Since 401(k)s and I.R.A.s only allow you to withdraw at 59, and you may want to retire before that age. You can open a taxable account to bridge the gap between your desired retirement age and the statutory one.
The taxable account doesn’t have any of the limitations that come with a typical retirement account. There’s no contribution limit, you can access your funds anytime, and can invest in mutual funds.
There you have it. It’s important to note that FIRE isn’t about stopping work or retiring completely. It involves being able to do what you love. Most proponents continue to work in part-time roles after attaining financial independence, as the case with Schneider.
What is your FIRE story?