No one wants to retire later than sixty-five, at the most, and many try to beat that by five, ten, or even fifteen years. As pleasant as that might sound, retirement at any of those ages is far too late in life for individuals living in the Financial Independence Retire Early movement. Imagine for a minute that you’re retiring in your twenties or early thirties? Well, if you join the FIRE movement, you may just make that dream a reality.
What is the FIRE Movement?
This has nothing to do with camping or some new slang. FIRE stands for Financial Independence, Retire Early. FIRE is all about you, your finances, and looking ahead to the future. It is a lifestyle system popular among millennials as they strive to retire early. Now, you may be thinking that’s what everyone is trying to do. For them, early retirement means retiring in their forties, thirties, and even their twenties.
Can You Retire Early?
It may seem daunting as a concept, but the formula is pretty straightforward: spend less than you earn, saving between 50% to 70% of your income, and put the difference in low-fee investments. Investing in index funds is popular; nonetheless, other notable options include rental properties and passive business income streams. A large part of being successful in Financial Independence Retire Early is learning and developing your commitment to living frugally.
You will be sacrificing quite a lot to live a FIRE lifestyle. If you like material possessions, buying brand new, or hate grocery store brand products, this may not be the best option. However, for many, it’s proving to be worth everything they’ve given up if it means retiring far earlier than anyone could have expected. (See Also: 15 Simple Ways to Manage Expenses and Save Money)
How to Retire Early?
Consider these ten tips and techniques to help you get started saving your money to achieve financial independence and retire early. We’re confident it’ll work for you.
Step 1: Lower your housing expenses.
Explore things that you can do in and around your home to reduce your expenses and increase your savings. For example, try using energy-efficient light bulbs in your home. If you have a house with a yard, set up solar-operated lighting. Next, find electronic devices that are not being used and unplug them. Also, instead of using the dishwasher, begin washing dishes by hand. By doing so, not only will you be saving on your electricity bills but also on your water bill. These efforts can help you to lower your housing costs and push you in the right direction towards FIRE.
Step 2: Drive a used car.
A used car will surely cost you less money than purchasing a shiny, new one right off the lot. Though it is essential to save the money you worked hard for, the Financial Independence Retire Early movement requires you to also be on the alert and watchful of your spending. Many websites will help you research used vehicles your money can buy. If you can buy it outright, then that would be even better. This will help you save money rather than obtaining an expensive car note. However, buying a used car does have a negative reputation. For instance, they may have an expired warranty, questionable damages, or hidden accidents. Therefore, you must take care of buying and maintaining a used vehicle for it to remain reliable and operational for years to come.
Step 3: Get rid of cable.
As they say: CUT THE CORD! Many service providers are extremely expensive and overpriced. The channels you want are bundled in packages with channels you don’t need. Their entertainment and premium options, such as sports and HBO will put a bigger dent in your pocket, each month. These days, everyone either has or seeks means to gain access to the internet. Take advantage of what you already have by getting a Netflix or Hulu account instead. In case you don’t want any extra cost for television or movies, you can look out for discounted DVD movies and tv series. (See also: 4 Steps for Managing Your Financial Ambitions)
Step 4: Find a cheaper phone service.
Similar to cable, most phone plans are not designed to help you save money. Your phone company is nickel and diming you for data, minutes, and other features that should be included in your plan. Search through service providers in your area and online. Once you find one that best suits your needs, jump ship as soon as you can. Your bank account will thank you.
Step 5: Travel smart.
Air miles are popular for a reason. Use points when buying tickets in order to save money and make smart financial decisions when it comes to travel. Book an Airbnb instead of an expensive hotel. Find local places to eat that everyone loves but isn’t overpriced. Go for the experience, not souvenirs.
Step 6: Lower your grocery bills.
Do you still get coupons in the mail? Use them. Does the grocery store have a generic version of the products you normally buy? Get those instead. Don’t have a club card to take advantage of sales? Get one.
Step 7: Increase your income with multiple income streams.
If you have a passion or a skill set that you’re not producing income from, challenge yourself to change that as soon as possible. Find your FIRE burning within and unleash it. Photography, software development, design, investing, and writing, for example, are some of the things that you can do to profit from. You don’t need years of experience or a degree to find opportunities using your skills to increase your income. Just search them out and set started. (See Also: What Does It Take to Achieve Financial Freedom?)
Step 8: Invest in low-cost index funds.
Index funds are a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor’s 500 Index (S&P 500). They’re said to provide broad market exposure, low operating expenses, and low portfolio turnover. The more you save on your investments, the more you’ll gain in FIRE.
Step 9: Be thrifty.
Thrift stores are everywhere and they don’t just sell clothes. You can find just about anything you may need. In addition to home decor items and furniture, you will be able to discover toys, shoes, and home accessories. Your wardrobe doesn’t need to be filled with designer apparel to be fabulous. (See Also: Planning Your Perfect Holiday Budget)
Step 10: Follow the 4% rule.
In Financial Independence Retire Early, this rule of thumb is used to determine how much you should withdraw from a retirement account each year. It seeks to provide a steady income stream to you while maintaining an account balance that keeps income flowing through retirement.
Will You Catch FIRE?
By following the FIRE lifestyle principles, you grant yourself financial independence faster than most people would traditionally. At the end of the day, you’re saving money, eliminating poor spending habits, making informed investment decisions, and doing smart things with your money. Now, the most important question you have to ask yourself is: Why? Why are you doing this? How do you want to retire early? When is this the best option for you? If your answers lead you back to FIRE, then it’s certainly worth trying.
A FIRE Plan for Every Lifestyle
While the FIRE movement may be gaining traction amongst millennials and others, a financial plan is still needed to track your spending and maintain a budget. Investing, living frugally, and being thrifty are great steps forward, but without a way to manage everything easily, you can quickly give up on your early retirement goal when it becomes overwhelming. BudgetPolitan has exactly what you need to monitor your road to financial independence. BudgetPolitan provides you with a flexible, easy-to-use budget plan that helps you track and understand your spending habits. Their goal is to help you reach true financial freedom. Sign-up today to start building the financial plan that will work best for you.