F.I.R.E. – Financial Independence Retire Early. Your guide to early retirement.
The only thing you need to do is save only 80% of your income for only ten years and then live like a king for the rest of your life. The term FIRE was first coined in 1992 by two financial gurus of the time.
In the beginning, many thought this Idea to be ludicrous, and it simply cannot work in the long term. If someone retires at the age of 30, they cannot possibly survive solely based upon their returns from investments for up to 60-70 years in future.
Simply put, as long as your investments can generate income to support your living expenses, you can retire tomorrow.
First of all, getting to that point can be harder for some than others. The advocates of the movement say that this difficulty has more to do with the lifestyle than it is to do with an individual’s income.
There are ways you can follow that’ll help you get there faster.
Start off by destroying your debt that has the highest interest rate. Before you can start building your savings to follow fire and live a frugal life, you need to pay off all your debts. Otherwise, the interest rates on your debt will eat away all your savings.
Save aggressively, most of the followers of the fire movement save as much as they can while cutting down on unnecessary expenses and then investing the saved amount into a low-cost index fund that covers the whole market.
Becoming Financially Independent
Once you have saved up a substantial amount of money and you have reached your saving goal. The key is to NOT leave your job altogether. Go from full time to part-time for another few months or a couple of years. You won’t need to withdraw the whole 4% or whatever you choose your rate to be of your investment returns by working part-time. You give your investments time to grow.
The whole concept of the FIRE movement is based upon your financial decision making. Make every dollar count, and every dollar spent on the necessary items contribute toward your goal.
Budget For Every Week, Every Month, & Every Occasion
In the Fire movement, budgeting is the key to reaching your goals and staying on top of your finances. In the beginning, when you make a budget and stick to it. It helps you project your earnings far into the future, helps you analyse in which area most of your money is spent, and help you separate necessary spending from unnecessary or impulse purchases. One way to motivate yourself to make a budget and cut most of the unnecessary spending is by calculating the opportunity cost of your impulse purchases.
For example; You eat out twice every week, which costs you $50 per week ($25 per meal-that is radically cheaper than what it actually cost but will keep the number at $25 for the sake of easy maths.) If you cut that in half, which will save you $100 a month, invest that money with returns of 9.8%(Historical returns of S&P 500 for last 90 years). After 20 years, that investment of $100 a month will turn into, hold your breath, $74600.72. Don’t believe me, see for yourself.
Be very careful when it comes to leaving the workforce. It can have a psychological effect. Working eight to ten hours a day can keep you busy. When you’re busy, you’re not spending money. The day you stop working, you’ll all of a sudden find yourself looking at things and items to buy, which can blow your budget out of the water.
Leaving your job shouldn’t mean you’re leaving the workforce. Keep yourself engaged in hobbies and activities you love to spend your time on.