In this 2 Minute Q&A Tuesday we’re discussing if you should join the FIRE Movement. I am going over my thoughts on financial independence, retire early, and how my family plans on approaching our Financial Independent Numbers.
What would you do if you had enough money saved to retire 20-30 years early? Would you follow your passion, help those less fortunate, or travel? Probably a mix of all of them if it was a real option right? For some, this might seems like a make-belief question since it’s so difficult to get to that point financially. But a new movement that’s challenging the status quo of how to retire is heating things up. Yup the F.I.R.E movement, which stands for Financial Independence, Retire Early.
What is the FIRE Movement
Financial Independence, Retire Early is a movement of people who are aggressively reaching financial independence as soon as possible. They’re intensely focused on living below their means, increasing their income, and heavily investing to reach financial independence. Your raw financial independence number is calculated by multiplying your cost of living by 25. This will show you how much you will need to have invested to comfortably pull 3-4% of your investments for the rest of your days. Here are some resources to get more information on how to calculate your FIRE number and how to live off the 4% withdraw rate.
What Motivates People to join the FIRE Movement?
For a lot of people, just realizing that they can become financially independent and choose to retire early is a mindset shift on its own. This is the most empowering thing about the FIRE Movement because people are seeing the opportunity to have options. That is something that’s considered a long fetch for a lot of minorities when it comes to financial stability. Now to see people who look like you, who are reaching to change their financial future is motivating enough.
Financial Independence: Position yourself to have options
My husband and I both find the financial independence portion of the FIRE Movement to be very interesting. The FI portion of the movement positions you to a wide range of options for how you want to live. It made us sit back and question what we wanted the picture of our lives to look like. We realized that we didn’t need millions in the bank in order to do what we love. We could focus more of our time on building wealth over time and living our best lives now.
Retire Early: The Cons of FIRE
A lot of times, people want to have millions in the bank to quite a job or career they hate. This isn’t the case for us. My husband and I are both very fortunate and blessed to be able to do what we love now and not have to wait until we retire or have millions in order to do so. I don’t think the FIRE Movement should be used just to escape a job you don’t want to be in anymore. Instead, following the opportunity for financial independence can open the door needed to leave the job you don’t like. Because my husband and I already have made those initial steps, we’re both are happy in the careers we’re in. This is why the RI, retire early, a portion of the FIRE movement doesn’t appeal to me as much.
How to Create the Opportunity for FI
When my husband and I decided to live our lives on our own terms, that actually came with a lot of sacrifices. Less traveling, less eating out, while we paid off debt, worked on our financial traumas, and invested in ourselves. Again, it wasn’t easy, but I want to share how we are strategically positioning ourselves for the opportunity for financial independence
1. Figure Out What You Want
Yup, this is super hard especially when you’ve been told what you wanted for years by marketing geniuses. For my family, we decided to picture our perfect day that included working, kids, and our daily routine. What did that look like? Going on a morning jog? Spending quality time with your kids in the backyard? What is it? These are the questions we had to answer while still creating an income. Is it impossible to do something your passionate about and still make money? No, we all have talents and skills that can pay the bills and offer flexibility to live your best daily life. Again you have to focus on what you want the painting of your life to look like and work to pursue those colors.
2. Get On a Budget
For us, it took some time to get the hang of our spending and the cost of living. But once we did, it made a big change in our finances. A big tip for new budgeters is to manage your budget the same way you manage your bank accounts with the High-5 Banking Method. Sticking to your budget is important and if you have a system that holds you accountable then you’re in good shape. Especially when you need to maximize your income to help you achieve your FI number.
3. Live Below Your Means
This statement of living below your means is very difficult when you live in an expensive city. But for us, it helped to look at our big expenses to help us make budget cuts. We quickly realized that debt was one of the most expensive costs that were holding us back. For many, the top expenses to reduce are housing, transportation, and food. It’s important that you making your dollars stretch as much as possible in these areas. Becoming debt-free and getting on a meal plan allowed us to lower these expenses since housing costs are booming here in California. This is where you have to work with what you got and reduce where you can.
4. Increase Your Income
Trying to increase your income is very time-consuming at the beginning. We definitely had to make more money to make our situation, to eventually make sense. You can only make so many budget cuts, but that isn’t the case for income. What we decided to do was to invest in our hard and soft skills to propel us in our careers. I got more certifications in the finance industry and my husband used his graphic design skills to pick up side projects. This helped us grow our network and sharpen our skills to earn more money in the long run. Whatever you do to morally better position yourself to make more money, please do it.
5. Position Yourself to Save and Invest
If you want to position yourself for financial success then you have to get in a comfortable spot financially to save and invest. The best way we’ve been able to do this is to take care of our mandatory bills first. Once our day to day is taken care of, we then have the mental space to think about our goals and investments. This is how you financially and mentally give yourself the ability to save and invest without the stress of the daily requirements.
Having money set aside for emergencies is necessary for any stage of your finances. For FIRE, I am seeing a lot of people position themselves with 12 months of emergency savings or more. This is important to note because even if you retire and have money in your retirement accounts, you want to make sure you still have cash. The main reason is that emergency situations can happen to anyone and at any time. This is the first pocket of our strategy to make sure we have what we need.
The second stage we’re working on is maxing out our retirement accounts. This doesn’t have to be the full contribution, at first, because let’s be real that’s a lot of money. It’s good to set up a baseline of how much you can contribute consistently before jumping head first. Once in a good routine, the goal should be to max out all Roth IRA account to grow your nest egg for your 60s.
The third stage to FIRE is to grow your wealth no matter if you get a tax benefit or not. A lot of people get stuck to just retirement accounts because they only want to invest if they get a tax break. In order to build the life you want, you have to stop looking for everything to have a tax break at the end of the tunnel. It’s important to invest and build wealth no matter if you get a pat on the back. The beauty of this account is that you can invest however much you want and can pull the money without having to worry about the IRS or anything dramatic.
I think that the FIRE movement might work for some, but not for everyone. It is very difficult and a big sacrifice to postpone your life to quickly reach your FI number. I think it’s a bit easier if you position yourself to grow your wealth over time and not within 10 years. This way you can focus on becoming financially stable enough to jump into a career you want to be in. Now, if FIRE works for you naturally then go for it, but make sure you make time to create some amazing memories as well.
- The High-5 Banking Method
- Self Funding Your Own Retirement
- Emergency Fund Savings
- Retirement vs Traveling in your 20’s