FIRE is an acronym that stands for “financial independence retire early.” People who join this movement aim to retire as early as their thirties or forties. These people go to the next level in saving as much as they can and increasing their income as much as they can in a short period of time. Aggressively saving and being frugal, however, does not come without costs. Most people tend to prefer a balance between spending and enjoying the present while also saving for the future and retirement. Other people like what they do and can’t imagine not working. The movement has gained traction though, as there are many people who would rather work hard now and enjoy life later.
The different types:
LeanFIRE: This aims at a minimalist way of living in order to save and retire early. One lives on the bare minimum, and even in retirement, one lives very modestly. Because of extreme saving, these people tend to retire earlier.
FatFIRE: This is less frugal than LeanFIRE as this approach doesn’t have one sacrificing as much currently or in retirement. One will have to save more because of this, and retirement might take a little longer.
BaristaFIRE: This approach has the same goals in mind, but lets people work part-time or do freelance or do something they love that doesn’t pay as much. By saving for this type of lifestyle, one is able to work for pleasure for most of their life rather than just working to live.
Knowing how much to save:
Before retiring, one must be certain that one’s money won’t run out. The majority of retired people can use about 4% of their portfolio per year. This 4% ensures that retired people have enough money to live on and have enough money left to last them through their retirement. However, this is only the case if one has about ¾ of one’s money invested. To figure the numbers out, you should roughly calculate your expenses per year and divide it by 0.04. You can also then use the number you calculated as your expenses per year and multiply it by 25 in order to roughly estimate how much you need to save overall in order to retire.
Important things to remember:
You most likely can’t take money out of your retirement account until you are at least 55 years old. In this period of time from when you retire early until this age, make sure you have an account set aside to support you through these “bridge years” between these ages.
How to get started:
1) Look for ways to cut your costs
- Move somewhere with a lower cost of living
- Live in a smaller space of with roommates
- Forgo memberships and subscriptions
- Don’t take vacations
- Sell your car if you have one
- Buy used clothing/items
- Don’t drink alcohol
- Don’t own pets
- Don’t buy gifts
Overall, try to save around 50-57 percent of what you make and invest in funds or stocks with high yields, and take advantage of cashback.
2) Get a side job or another way to earn money than your main paycheckRent out additional rooms
- Rent your car
- Sell your stuff
- Resell things
- Start a small business
- Invest in stocks and real estate
- Buy bonds
4) Pay your debt
Make sure to pay any loans or credit card debt as soon as you can. Debt increases your monthly overhead and the interest rate just accumulates as more time goes on.