Your 9-to-5 day job undoubtedly comes with a lot of perks. You have great work buddies, free Friday lunches, and a routine you’ve grown comfortable with. However, as you put in your time at your job, you’ll likely begin to experience burnout.
If you don’t want to wait around to retire the traditional way, you might be interested in a new trend called the FIRE movement.
FIRE stands for Financial Independence Retire Early. In a nutshell, it involves saving and investing a majority of your income. The end goal is to retire at an early age, usually somewhere between 30 and 40, with enough money to live off your investments.
If this sounds like something you can get behind, here’s how to become a part of the movement.
- Calculate Your FIRE Number
It will be very hard to participate in this movement without first knowing your FIRE number. This number, which is the amount of money you need to have in your portfolio to retire, is what you’ll be working towards.
In general, FIRE participants follow the 4% rule to calculate their numbers. This means that you will be spending 4% of the money you have saved up every year. You can calculate this amount by multiplying your annual spending by 25.
This is the amount of money you need to have saved up. For example, if you can live off of $20,000 per year, you will need to have $500,000 in your portfolio. If you want to have a more extravagant lifestyle in retirement, you will need to have more money in your portfolio. If you want to be able to spend $50,000 per year, you will have to accumulate $1.25 million.
To ease concerns of running out of money, you can run through different scenarios using Monte Carlo simulations on WealthTrace.
- Pay Off High-Interest Debt
High-interest debt can severely impede any financial goals. Focus on paying off student loans, personal loans, and credit cards. Try to pay more than the monthly minimum so you can lift the burden of this kind of high-interest debt.
- Lower Your Expenses & Increase Your Income
Some FIRE participants swear by lowering their expenses as a way to free up money for investing. Others prefer to increase their incomes. Instead of focusing on one particular way, try doing both!
Some ways to lower your expenses include:
- Grow your own fruits and vegetables in a garden
- Cut out expensive habits like drinking and smoking
- Cut back or bundle your Internet and phone services
- Move to a smaller home or apartment
- Eat at home more instead of dining out
- Lower your insurance premiums
- Reduce electricity use
- Take advantage of free entertainment (community movie nights, public libraries, public parks)
- Use public transportation
Some ways to increase your income include:
- Start a side hustle (do freelance writing, become an Etsy shop owner, drive for Uber)
- Apply for a promotion
- Ask for a raise at your current job
- Look for a higher-paying position at a different company
- Choose an Investment Vehicle
Once you have accumulated more money, you need to put it to work by investing it. This will put you on the fast track to retirement.
All investment vehicles come with certain levels of risk. It’s up to you to decide which ones will work for you. Some possible ones to choose from include:
- Real estate
- The stock market (specifically low-cost index funds)
- A small business that you believe in
Though it may sound intimidating, FIRE is very achievable with the right mindset. Even if you don’t obtain your FIRE number in the timeframe you establish, following these tips can shorten your retirement journey by several years!