Have you noticed? There’s a lot of excitement over the FIRE movement at the moment. Everyone is talking about it, and it’s all the rage. The dream of never setting foot in the office again, having achieved financial independence at the age of 35 – it’s suddenly the “in thing”.
As part of this movement, millions of people have begun to redefine the retirement age. But just how feasible is it to achieve FIRE? This post explores exactly what’s required to become a member of the exclusive FIRE club. But, first things first…
What does FIRE mean?
FIRE stands for Financial Independence Retire Early. It’s a movement that started gaining popularity with millions of millennials in 2010.
If you’re looking to achieve FIRE, your main goal is to maximise the rate at which you save your income. Although one misconception about the FIRE movement is that you’ll need to keep your outgoings and expenses as low as possible, you still need to keep your spending in check. With these two factors in mind, you’ll be able to retire many years earlier than the typical, standard retirement age of 65.
What is the ideal savings rate to achieve FIRE?
So, what’s the magic number that will help you achieve FIRE and become ready for retirement earlier? Well, the main goal to aim for is to keep hold of a pot of money worth 25 times your annual spending.
Aggressive saving and making shrewd investments are the keys to achieving FIRE status. How much saving is required – what’s the exact percentage? You should look towards retaining between 50% and 75% of your income.
These figures are backed up by the findings of a study carried out at Trinity University in Texas. It found that you’ll be able to live comfortably off a safe withdrawal rate of 4% in the first year and then increase your retirement withdrawal by inflation. By taking steps like these, your money is likely to last throughout your entire retirement.
Bear in mind that the 4% rule – withdrawing 4% from the pot of money you might have invested in stocks and shares – gives you a 95% probability that your money will last for at least 30 years.
4 key strategies to help you gain FIRE status
We’ve established that you’ll need to save – a lot – to become financially independent and retire early. But what are the other key ways to begin saving aggressively and retain as much money as possible? Here are four key strategies you can use.
Monitor your expenses and keep them low
Keeping track of where your money is going is vital, especially for those who want to achieve FIRE status. Calculating exactly how much you’re spending and being a bit frugal is a critical step. You can achieve this by adding up all of your outgoings and finding ways to keep them as low as possible.
You should also try to make the most of the discounts, which is one solution to spending too much. This doesn’t mean spending next to anything, but being slightly frugal can help. If you drive, for instance, look for discounted fuel. If you need to get your car serviced, search for discounted car services. If you’re planning to go away on holiday, look for discounts at holiday parks.
Keeping expenses low also includes finding lower tariffs for your phone bill and thinking about your credit card outgoings. Be creative when thinking of ways to reduce your outgoings. The more you reduce your outgoings, the faster you’ll achieve FIRE.
Find ways to increase your income
There are plenty of ways to increase your income, including doing extra jobs on the side. You might choose to start your own small business in a field you find interesting or have expertise in. You’ll soon start gaining more money than you can put towards your retirement.
Turning your hobby into extra income is another ideal way to help you earn extra income. Some ideas might include starting a blog or launching a small eCommerce site…
But you can also begin to increase your income in a simpler way – by selling items second-hand that you no longer use.
Clear all your debts
The best way to reduce your outgoings? Get rid of your debts. It’s the key to becoming financially independent and retiring early. It’s ideal because, by paying off your debts, which might also include your mortgage, you can choose to invest your income smartly or use it in a more productive way.
Funding your new business, saving a little extra, contributing to your retirement fund… these are all achievable goals once you’ve cleared your debt.
Make sound investments
One of the most popular ways to achieve financial independence and retire early is to make sound investments. In fact, the FIRE movement advises those who want to achieve FIRE status to invest in exchange-traded funds.
The Vanguard Australia – the largest Exchange Traded Fund in Australia – is a popular choice, giving you the chance to reap some of the rewards and profits of some super successful businesses.
Start saving, budgeting, and investing to ignite the FIRE status
Achieving financial independence and retiring early is popular for a good reason. Who wouldn’t want to say goodbye to the office forever at 35? But keep in mind that it requires a bit of hard work. The earlier you want to retire, the more work you’ll need to put in.
The advice we’ve provided you with here will put you on the right track. The key to igniting the FIRE status? Keep saving, budgeting, and using shrewd investments. You’ll soon see the back of your office and be able to enjoy your retirement, earlier!
