Have you ever imagined a life where you call the shots, follow your dreams, and wake up each day knowing that your choices are not determined by the need for a paycheck?
Welcome to a world of financial possibilities, where the secrets of FIRE are unlocked to change the way you think about your future.
What is FIRE?
FIRE stands for: Financial Independence, Retire Early
Your main goal in using the FIRE method is to build up enough wealth to cover living expenses for the rest of your life without having to work, thereby achieving financial independence.
How You Do It
Achieving FIRE requires a disciplined combination of:
reduction of living expenses
Why It's Worth It
escape the stressful paycheck-to-paycheck cycle
make life decisions based on your dreams, not your bank account
freedom to retire early or work on your terms
FIRE is all about choices, planning, and dedication. Here's how you get going...
A strong savings strategy is your first step to financial freedom. Don’t be fooled into thinking that only high income earners can save! Just start small and build the habit of saving consistently.
Set up automatic transfers to your savings accounts.
"Pay yourself first" bysaving before spending your paycheck.
Start by following the 50/30/20 Rule and build up from there:
50% to essentials (rent, bills)
30% to wants (fun, dining out)
20% to savings and debt repayment
Feeling like you can't stretch your current paycheck to make this happen? Don't worry! Let's look at ways to make your money go further.
This helps you free up more money to accomplish your FIRE goals faster!
Track your income and expenses by category — budgeting apps can simplify this process.
Cut back on non-essential expenses–make the tough choices now for future rewards!
Use windfalls, like bonuses or tax refunds, to boost savings.
Debt can hinder your journey to financial independence, so it’s best to pay off debts as quickly as possible and try to avoid new high-interest debt.
Allocate a portion of your budget to tackling debt. Consistency is key to reducing your balances.
Focus on paying off high-interest debts first (e.g., credit cards).
If you have student loans, explore options for repayment — income-driven repayment plans (USA) can ease the burden.
Carefully consider mortgage terms and rates. Real estate can be an investment, but requires planning.
Reducing debt is freeing and essential for FIRE. Develop a strategy to pay off debts and avoid accumulating new ones.
Invest in Yourself
Investing is a key pillar of FIRE and it means putting your money to work for you by buying assets like stocks, bonds, and/or real estate to grow wealth.
Time is your greatest ally in investing — even small amounts can grow significantly over time because of compounding interest. So start small and start now!
Do your research to fully understand investing before you begin.
Explore investment apps and platforms — many offer low fees and user-friendly interfaces.
Diversify! This means spreading investments across various assets to reduce risks and enhance returns.
Start small, stay diversified, and let compound interest work its magic for building your wealth.
Side hustles and passive income can accelerate your journey to FIRE.
Side hustles are part-time gigs to earn extra income:
Why: supplements your main job's earnings to increase savings potential
How: look for opportunities that align with your skills/interests in the gig economy or online marketplaces
Examples: freelancing, gig work, selling goods online
Passive income flows without constant effort:
Why: provides financial security and a faster, easier path to freedom
How: invest in assets that generate passive income, like dividend stocks and rental properties
Examples: dividends, rental income, royalties
Explore opportunities, invest wisely, and grow your income streams to achieve financial freedom.
Focus on the 4% Rule
Achieving FIRE means having enough wealth to sustain your desired lifestyle without working.
A general guideline for this is following the 4% Rule: the idea that you can safely withdraw 4% of your investments annually without depleting your portfolio.
Once you can live on this amount, consider yourself retired! 🎉
Calculate your FIRE number: estimate your annual expenses for retirement and then multiply by 25 (inverse of 4%) to find your target savings & investments goal.
Plan your timeline: how long it takes you to get to FIRE depends on all of the factors discussed in this Byte, but your savings rate is the #1 indicator.
To retire in:*
20 years, save 35% of your income
15 years, save 50% of your income
10 years, save 65% of your income
5 years, save 80% of your income
*Note:These figures are based on starting with $0 in savings, earning 5% - 9% annually on your investments, and withdrawing 4% of your nest egg each year in retirement.
Determine your FIRE number, monitor your progress, and celebrate when you've achieved financial independence!
Mackenzie is a 24-year-old who has calculated her FIRE number and set a goal to reach it by her 39th birthday. Assuming her current salary doesn't change (and she plans to live on this amount in retirement), how much of her income must she invest monthly?
Ready to FIRE up your financial future!? You can do it! 🔥