Financial Independence, Retire Early. How It Is Possible?

The Financial Independence, Retire Early (FIRE) movement has become extremely popular recently. This trend is commonplace among people who work toward one target: to save as much as they can while they work so that they can retire in their 30s, 40s, or 50s – before the traditional retirement age.

Who doesn’t want to retire earlier? Although this movement means you should dedicate a majority of your income to savings, it promises a lifestyle of flexibility and freedom. Yet, you need to remain determined and disciplined to reach this goal. Here is what the FIRE movement means and how it works.

What Does FIRE Mean?

The acronym FIRE stands for financial independence retire early. This is a popular movement and it means you should aggressively save and invest a large portion of your income. This way you will be able to reach financial independence sooner and enjoy an early and comfortable retirement.

This movement was born out of the 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez. The main idea of this book is to evaluate every cost in terms of the number of working hours it took you to cover this cost.

For some, the best ways to borrow money when you feel pressed for cash are taking out a personal loan, a payday loan, a cash advance, or using a money-borrowing app. But it’s even better to have your savings to cover your monthly expenses and have enough funds for unpredicted emergencies. This is what the FIRE movement teaches you.

By saving up to 70% of your annual income and investing, proponents of the FIRE movement desire to retire earlier and live off small withdrawals from their accumulated money.

Many people who follow the FIRE movement pride themselves on:

  • Frugal living. If you want to reach your financial goals faster, you should save more and live frugally. So, these followers adopt a minimalist lifestyle and decrease their spending.
  • A high savings rate. Devotees of this movement try to save half or more of their annual income and live on what is left.
  • Simple investing. This is a strategy most FIRE enthusiasts follow as they purchase rental properties for passive income or invest in low-cost index funds.

How Does FIRE Movement Work?

The FIRE movement has become widespread among American consumers who want to invest and save at least 50% or more of their income so that they have an opportunity to retire earlier. Is it possible?

Yes, if you drastically lower your monthly expenses, search for ways to boost your earning potential, and invest the funds you save in a mix of tax-advantaged accounts. Saving and investing a major chunk of your salary will offer you the financial flexibility to have freedom in the way you want to live your life.

It may sound exciting but it’s also quite challenging to achieve and this strategy comes at a cost that not every individual may afford. FIRE followers should dedicate almost all of their income while lowering their expenses to the bare minimum. The more you have to invest, the more funds you will have once you retire. On the other hand, not everyone can live as simply, especially those who have children and a big family.

According to the 2021 Vanguard Digital Advisor survey cited in Fuel for the F.I.R.E. research paper, 22% of millennials hope to retire before they turn 60. The main goal of this movement is not to stop working and only have naps until you reach retirement age, but to have the freedom to choose how much you want to work. It means investors have a chance to select the way they spend their time, they may stop working, work part-time, or pursue the work they love.

Financial Independence, Retire Early. How It Is Possible?

FIRE Movement Tips

There are several methods to reach FIRE. Everything depends on the person’s financial goals and other circumstances. Here are the basic principles of this movement.

Determine What “Retire Early” Means to You

Some people have wrong expectations about this movement and suggest they won’t need to work at all and will just do nothing each day. In reality, many enthusiasts and FIRE followers keep on working even after they retire, not because they have to but because they like it and want to keep physically active and mentally healthy.

Other people may want to leave the workforce to travel the world, pursue other dreams, and even volunteer. It’s all about having the freedom and flexibility to live the life of your dreams.

Count on Investments Compounding Interest

Compound interest is what you should count on heavily in an attempt to reach FIRE. For instance, you may want to have $1 million to achieve FIRE and you are saving $3,000 per month. Provided that you store your funds in a savings account with no or little interest, it will take you 28 years to achieve this goal.

On the other hand, if you invest this money, at an 8% annual return, you will be able to achieve this target in 15 years, which is almost half the time.

Save Everything You Can

This is one of the most important strategies. The more funds you set aside, the sooner you will achieve financial independence. Thus, try your best to save a high percentage of your monthly and annual income.

Experts and FIRE movement followers suggest saving at least 50% of your salary or more. More than that, it depends on the time when you desire to retire. Those who want to retire at age 30 should save more aggressively compared to people who aim to retire at age 50.

The Bottom Line

To sum up, the FIRE movement allows individuals to retire earlier. Some people may want to retire in their 30s, 40s, or 50s. The sooner you aim to retire, the larger percentage of your annual income you should save and invest. If you decide to retire in your 50s, you may need to save less aggressively but still live frugally and dedicate at least half of your income towards savings.

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