What if it was possible to retire in your 30’s or 40’s with financial independence without needing to be wealthy? You might not believe it, but a growing personal finance trend called F.I.R.E. is making it possible.
F.I.R.E stands for Financial Independence Retire Early
F.I.R.E. is a movement where adults save and invest while trying to cut their spending, hoping to retire in 10 years. There are many versions of the F.I.R.E. movement, but the general idea is to become financially independent for the rest of your life from your 30’s or 40’s by saving/investing all your money and cutting unnecessary spending.
The original version of F.I.R.E. is being able to have enough savings/investments to support your lifestyle forever without needing to work for someone or to pick your own hours and jobs.
You may ask, “How do you figure out how much money you need to live comfortably without working?” The general plan behind F.I.R.E. is to save 25 times or more of your annual income and once you retire only withdraw 4% per year from your savings/investments. This is all assuming your investments are earning a 8% return. In this way, you are always going to have money in your investing portfolio to depend on.
But is F.I.R.E. for you? Honestly, it's really up to you, but one lesson everyone can learn from this movement is to save and invest as much as you can for your golden years. F.I.R.E. is a powerful movement to join if you want to live financially free and be able to do other things you enjoy without the burden of working a 9-5 job until you're 65.
If you want to join F.I.R.E., you need to first determine your annual expenses if you want to continue your same lifestyle. For example, let's say your current lifestyle costs $30,000 a year and you plan to save 25 times your annual expenses to be financially independent, that will be $750,000 saved to follow the 4% rule with minimal risk. If you want to follow the 3% rule, you need 33 times your annual expenses. Here, it will be $990,000.
You may think, “Wow! How will I ever save/invest that much?” reality, it will take time but other types of F.I.R.E. can help you save enough to work fewer hours or work in an area you enjoy but make less money in. Another solution is to cut back any spending you can to save more money. If you can cut $3,000 a year, you will only need $675,000 to $891,000 instead.
You can save money by picking up extra jobs, starting a side hustle, or increasing cash flow to knock out debt. You will need to either invest (smartly) or save your money. How you save/invest your money is up to you and we recommend consulting with your parents or a professional about your financial plans. Happy saving!
Written by Ian Cohen