Article
#FIRE- Financial Independence, Retire Early – How to Do It
Carl Hazeley
- The financial independence movement is basically about saving enough money during your working years to have a big enough pot to see you through the rest of your life. There are people in this movement who’ve managed to retire in their 30s as a result – a pretty exciting prospect.
- the freedom that comes with having a big enough savings pot. They might not actually quit their jobs, but it’s quite liberating to know that you’re choosing to work rather than needing to. That independence is a big driver of the movement: the idea that we can be empowered through having financial stability.
- how do I do it? The basic concept is pretty simple: spend less, save more, invest wisely.
- Financial independence relies on the idea of a “safe withdrawal rate”. The goal is to have a huge sum of money in a safe investment portfolio of stocks and bonds that you draw from every year. According to the famous Trinity Study, you can safely withdraw 4% a year for 30 years without running out of money – that’s accounting for inflation. Your portfolio should always be growing more than the amount you’re withdrawing, putting you in a pretty great position.
- The quickest way to save more, of course, is to earn more. Many people in the FIRE community advise you to pick your career based on earnings potential: whether it pays well now, and whether your salary will progress at a nice clip as you get older.
- You might also want to explore getting a “side hustle” – a second job that you can do in your spare time to bring in some extra income. Think about if any of your hobbies can be monetized, browse sites like Upwork for freelance gigs, start a blog, or open up a small Amazon shop. You could even drive an Uber on the side.
- Cutting costs isn’t as hard as you might think. The quickest way to make a difference is probably to set a budget and stick to it. Just being more aware of your spending will help you to manage your finances. You can also try to cut down on unnecessary luxuries: instead of eating out every lunchtime, cook at home and bring food into the office instead. It’s worth making sure you don’t let “lifestyle creep” affect you too much: as you start to earn more, save that extra income rather than spending it.
- Within the FIRE community, there’s a subset who subscribe to the idea of “lean FIRE”: living on as little money as possible. That obviously makes it much easier to achieve FIRE, because you need a much smaller pot of savings. This involves living a really frugal life, though: they aim for spending less than $40,000 a year.