Break all the rules and conquer FIRE- Financial Independence and Early Retirement!

Financial independence and early retirement? Sounds cool, right?

Over the past few weeks, I have been going through the blogs of a lot of successful FIRE enthusiasts who have actually achieved financial independence and are pursuing early retirement.

From different FIRE subreddit group discussions to the story of a software engineer who retired at an age of 30 (yes, that’s 30) by spending only a small percentage of his salary and consistently investing the remainder (particularly in a stock market index fund)… I read them all.

And in this post, I am going to share a few of my learnings regarding what exactly is financial independence and early retirement (FIRE) and why you should sign up for this movement.

I hope you are also as excited as I’m. Let’s get started.

What is Financial Independence and Early Retirement (FIRE)?

Let me start with a question. If I ask you to think about a retiree, what picture comes in your mind? If you are like me, then most probably the picture is of your grandparents.

In general, most people dream of financial independence or retirement only by the age of 50s or 60s. After all, thinking about early retirement might even sound insane to people who are living pay-check to pay-check and have a number of dependents (like spouse, children, parents etc) to support.

However, time and again, a lot of ordinary people with similar financial situations like that of us- have proved that financial freedom can be achieved even at a comparatively young age if people have a definite plan and are ready to put some serious efforts.

“Financial Independence and Early Retirement (FIRE) is a lifestyle movement that aims at reducing expenditures and increasing investments in order to quickly achieve financial freedom and retirement at an early age.”

In simple words, the two terms described in FIRE can be explained as:

• Financial freedom — which is a financial situation where an individual does not have to work for the sole purpose of making money anymore.
• Early retirement — is a situation of quitting your job/career and pursuing other activities that you’re passionate about.

Anyways, most FIRE enthusiast does not always look forward to quitting their job completely and not working at all. However, after attaining financial independence, one can be picky about their job and choose whether they want to continue working or not. Nonetheless, people who sign up for FIRE targets to become financially free in their 40s, 30s and sometimes even in their 20s.

This movement has got a lot of momentum in recent years. A lot many people are signing up for FIRE- who want financial freedom and early retirement to pursue what they always want to do when they still are young enough to enjoy it.

Does FIRE mean the same for everyone?

Although both financial independence and early retirement are crucial steps, however, both side of the equation of FIRE may not be always balanced for different individuals.

Many people prefer financial freedom over early retirement. Some may even plan to work at the same place when they are financially free just because they enjoy doing it. However, financial independence gives them a choice to choose whether to work or not.

Moreover, how much net worth is required to attain financial independence also varies from people to people. As a rule of thumb, if your net worth is greater than 25 times your annual expense, then you might be financially free.

However, many individuals choose a higher factor just to give a benefit of the doubt in case of unforeseen emergencies.

Who is FIRE for?

In the general population, there is a myth that FIRE can only be achieved by people who earn a lot of money. And I agree to a little. After all, making huge money obviously helps towards the path of attaining financial freedom.

However, this is not the only requirement. In order to obtain financial freedom, one also needs to optimize his spending habits.

FIRE can be more easily attainable for those people who can save money and are willing to follow a disciplined path. Even if you do not earn a huge income, still you can reduce your expenses, build other sources of income and invest intelligently to grow your net worth.

Overall, attaining FIRE depends more on the willingness to develop a financial freedom road-map and sticking to a plan. Moreover, it’s not much difficult if you are ready to make some small but significant optimizations in your life.

The basic principle behind FIRE.

The basic principle behind attaining financial independence and early retirement is very simple-

1. Spend less than what you make – This is the method used to make a big distance between your income and spending, which most people fail to do.
2. Invest your savings: By investing intelligently, you can make your money work for you and let it grow with time using the power of compounding.

Anyways, deciding where to invest can be a personal preference. You can choose different investment options depending on your risk appetite like stocks, bonds, index funds, rental properties, real estate etc.

Actionable steps to reach FIRE:

Here are the five actionable steps that can help you to work towards conquering financial independence and early retirement:

1. Figure out WHY you want to attain FIRE.

This might be the most crucial question to ask before you start your journey of financial freedom- Why do you want to attain FIRE?

The reason can be as simple as to spend more time with your loved ones, to travel or to start a long-dreamed business with your pals etc. However, it’s really important that you figure out your why. Having a definite reason will help you keep motivated to pursue FIRE and to stick with your plan.

2. Track your expenses

The next step is to track your monthly (and annual) expenses by looking at your bank statements, credit card statements, and other bills. This will help you out to find how much you are spending and moreover, where exactly you’re spending each month.

Tracking your expenses will also guide you to figure out whether your expenses are meaningful or you are just spending recklessly. Quick Note: You might be a little shocked after calculating your expenses. Generally, it is way higher than what an individual roughly calculates in his mind.

3. Calculate what your lifestyle may cost you per year

After tracking your expenses, you need to figure out how much are your annual expenses and what net income you will require to live a lifestyle that you want to pursue. (Quick tip: Keep in mind about inflation while doing your calculations.)

4. Start working to optimize your expenses and to increase your savings

Once you have figured out your expenses and how much you need annually to start living your preferable lifestyle, then start working to increase your savings. You can cut back the small but significant expenses and optimize your spending so that you can save to the fullest. A few ways to reduce your expenses and save more:

1. Purchasing used car instead of a brand new.
2. Lowering your house costs/maintenances
3. Avoiding frequent visits to restaurants.
4. Buying monthly groceries instead of frequent visits to the supermarket.
5. Adding secondary sources of incomes etc

Although these steps are known and quite straightforward, still they are effective to reduce your spending and to increase your savings.

5. Invest your savings

The final step is to spend your savings intelligently in the different investing options which can give you the best possible returns.

Anyways, always keep in mind your risk appetite while selecting the investment option. For example, if you are not much comfortable in taking higher risks, then you can invest in bonds or index funds. On the other hand, if you are young and willing to choose slightly riskier options to get higher returns, direct investment in stocks can give you great returns.

While making decisions, plan your investments in such a way that your future assets should be enough to generate sufficient income for you so that you do not need to work any longer.

Quick Note: Although saving money is considered as the hardest step to attain FIRE, however in actual, the toughest one is to keep patience. After all, it might take years for your money to compound to the level to attain financial freedom. And all that time, you have to avoid the urge to reckless spend your money. And therefore, an individual requires a lot of patience to stick to his plan over long-term.

Also read:

• The Best Ever Solution to Save Money for Salaried Employees
• What are Assets and Liabilities? A simple explanation.
• 3 Amazing Books to Read for a Successful Investing Mindset.

Closing Thoughts:

Although many people have publically shared how they achieved their financial freedom and retired early through their blogs/articles, still FIRE is a relatively new concept in this society which believes that working continuously from their 20s to 50s is the only way to live a successful life.

Moreover, different people have different versions of FIRE. This movement basically means to live frugally and make your money work for you in order to attain financial freedom and to retire from your full-time work as soon as possible. However, not everyone has the same expectations from it. For example, whether one wants to go for a mini-retirements, part-time retirement or permanent retirement after attaining financial freedom- it totally depends on the individual’s preference.

Anyways, although it’s not easy to achieve financial freedom and retire early, however, it is practical and achievable even by people making average salary by building a financial plan and strictly adhering to it.

That’s all for this post. I hope you’ve enjoyed reading it. Finally, if you are also a financial independence and early retirement enthusiast, then spread the FIRE among your friends and family. Cheers!!