How to attain FIRE: Financial Independence, Retire Early
Being financially independent and retiring early is a dream for most of us. However, it is not the easiest thing to achieve. We are here to tell you how you can actually attain FIRE! The one-line explanation to achieve this is: spend less, save more. And utilize your 20s and 30s in a way that you can enjoy your mid-30s and above.
How much do you need to retire early?
The most critical part of retiring early is how much do you even need to retire well before time and enjoy your life ahead? Well, that always depends on your aspirations, living standard, and family expectations. While calculating how much you need for retirement, you need to consider the sum of money you will be spending each year before, during, and after your retirement (a close approximation works). Here, you need to estimate everything: from grocery shopping expenses, vacations, mortgages, sponsoring children (if required), and anything you are going to do over and above this.
You can use the median income level of your country to estimate a rough figure, and we suggest you always overestimate to keep a buffer income in hand. Once you have the median income, multiply it by 25-30, considering your life expectancy rate. If you want to retire early without any financial burden, you need to ensure that you have a considerable sum of money as a safe investment. This can include liquid money and also stocks and bonds that you can draw each year, or earn interest on, each year. A Trinity study says that it is safe to withdraw 4% of your investments every year for 30 years without running out of money (inflation included).
How to attain FIRE by boosting your income?
If you want to save more, you need to earn more. This accounts for opting for a career that has maximum earning potential right from the start. However, when opting for a high-paying job, always consider if it is worth sacrificing a passion or what you actually love doing. If you find a high-paying job that pays you for doing something you love, that is a win-win situation.
When we are in our 20s, the one thing we have more than everybody else is – energy. And we might as well utilize it by taking up a second job as a side hustle. After all, you need to grind for 15 years so that the next 30+ years are bliss. Having a second job will let you have a second source of income that you can entirely save, and here is when you can utilize your hobbies and earn by doing what you love doing.
Another way to earn a passive income without doing anything is to either buy a house and rent it or just rent out an extra bedroom in your apartment. You can or block an amount in the bank (as fixed deposits or mutual funds) to earn interest on the same. However, in all honesty, these are not really passive incomes because they involve work, at some point in time or the other.
In our opinion, investing a stash of your already growing money is the best way to develop it further, by the magic of compounding interest. If you have $1,000 that you can invest every year and get a 4% return, you earn $40 every in the first year. The second year, you get paid 4% on $1040. Over time, the amount snowballs as you have an extra amount in your bank that pays % extra on that amount every year.
How to cut costs now to have enough later?
Cutting on costs is one of the most challenging things of all, no matter your age. You must create a budget and strictly stick to it, being aware of the necessary expenditure and the spending that can be eliminated or postponed. Cutting on luxuries is something we recommend doing first and foremost. Instead, if eating out every day or alternate day, cook at home. That will save you more than you can imagine!
If you are serious about how to attain FIRE, you might want to relocate to a cheaper area of the country or completely eliminate vacations and boozy evenings for a few years. Some people even consider making more significant changes, like moving to a more affordable country where living expenses can be covered under as little as $35k-$40k. Some cut down on all the recreational expenses at once. This is tough, we agree. But this is one way to ensure that your early retirement actually happens.
Conclusion
Now that we have understood how one can achieve FIRE, it is evident that it is possible. However, there needs to be some significant life changes that you’ll need to adapt to. From cutting expenses to avoiding recreational activities, one needs to make lifestyle changes that might seem hard in the present but secure your future. After all, to gain something, we always have to lose out on something! Opportunity costs exist everywhere, from eating a burger to buying a house – we all have to decide what is more important at that point in time.
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