What’s your FIRE number? Okay, okay, I’m not talking about the actual fire but Financial Independence, Retire Early, i.e., FIRE. One of the buzzwords that has become quite significant in the lives of individuals seeking a balance between work and life is reaching that specific target, which leads to early retirement. This allows one to invest time in pursuing other hobbies, such as pottery, painting, or even going on a world tour. In case of unforeseen expenses on this journey, having a loan for emergency can provide a financial safety net.
But how do you achieve that? Is there a cheat sheet you must know? Well, as a writer in finance and known for giving financial advice, I am here today to share with you some of the best strategies you must keep in your wallet if you want to achieve Financial Independence and Early Retirement.
So, without further ado, let’s begin!
Understanding the Concept of Financial Independence, Early Retirement
Financial Independence, Early Retirement, a.k.a. FIRE, is a lifestyle movement that prioritizes extreme savings to achieve early retirement. This concept was popularized in 1992 by the best-selling book “Your Money or Your Life” by Vicki Robin and Joe Dominguez.
The purpose of the movement is to shift the conventional retirement age of 65 to something where people are independent and choose when they retire.
Strategies to Achieve Financial Independence and Early Retirement
The Rule of 25
Financial “gurus” who have actually attained financial independence advocate for the rule of 25 as a key strategy to achieve financial independence. The rule of 25 says, “You need to save 25 times your annual expenses to retire.” To calculate this, multiply your monthly expenses by 12 to get your current annual expenses, then multiply that number by 25 to get your FIRE number, or the amount you need to have for retirement.
For example, if your current monthly expenses are ₹50,000, multiplying it by 12 will give you ₹6,00,000. Then, multiplying that by 25, your FIRE number is ₹1,50,00,000.
Although this helps you get close to what you need to retire early, this number does not consider inflation, lifestyle preferences, taxes and fees, healthcare costs, etc.
This is why we have more strategies in our bucket to help you plan for early retirement.
Invest in Compound Growth
Because of inflation, physical cash stacked in your bank account will merely help you sustain your dream lifestyle. However, savings in a bank and investing in a tax-advantaged retirement account will help you.
Investing in government bonds and savings in traditional IRAs will help you pay tax upfront so your investment can grow tax-free, and you are authorized to liquidate your money tax-free.
Where do you invest for compound growth of your money? Stocks, bonds, or funds such as ETFs. The diversification of your investment portfolio depends on your risk appetite. Always remember, that FIRE is a marathon, not a sprint, so your investment strategy may need to adjust to the changing market trends, but the underlying strategy should remain the same.
In the process, if you ever need financial support, consider using a trusted instant loan app to bridge any gaps and keep you on track.
Embrace Frugality
To save a higher amount and ensure that after you take early retirement you don’t run low on cash, it is important to embrace frugality. It is about making conscious spending decisions and prioritizing value over luxury. By living below your means, you can save more and invest towards your financial goals.
Here are some frugality tips:
Be Minimalist: Focus on thrifting, buying only when required, and decluttering unnecessary possessions.
Find Affordable Alternatives: Look for cost-effective options for everyday expenses, such as cooking at home instead of dining out or opting for generic brands.
Prioritize Experiences Over Things: Spend money on experiences that bring joy and fulfillment, rather than material possessions.
Choose the Type of FIRE Lifestyle You Want
There are three popular FIRE approaches:
LEAN FIRE: This falls under the minimalist category, where individuals can live off very little and save half of their income to achieve financial independence.
FAT FIRE: This involves securing your future with ample funds to relax and enjoy life. It follows the philosophy of working harder now and resting later. For instance, if your monthly expenses are around ₹1 lakh per month and you continue to live the same lifestyle after retirement, you need to save a lot more than someone who aspires to live with less.
BARISTA FIRE: In this lifestyle, people do not necessarily plan to escape work entirely; instead, they want to save enough to quit their full-time job and work less or part-time. This requires saving less than other FIRE approaches.
Based on the type of FIRE approach you choose, your financial planning, saving, and investment will vary.
Take Professional Help
Consulting a financial advisor can provide valuable insights and strategies tailored to your unique situation. They can help you navigate complex financial decisions and optimize your plan for early retirement.
Your Key Takeaway
Leveraging these key strategies will help you achieve your goals of financial independence. Whether it’s traveling the world, spending time with family, starting a new business, or pursuing your hobbies, achieving FIRE can make these dreams a reality.
Remember, FIRE is not just about the end goal but the journey towards financial freedom that allows you to live life on your terms.
