So exactly what is FIRE? In the financial world, FIRE stands for Financial Independence, Retire Early. See what they did there? Clever! Let’s break it down some more. Financial independence is that stage in your life when the money you have invested (not the money you earn from your job) makes more money than you spend. Your invested money can be in stocks, bonds, rental properties, your blog – anything that makes money passively without requiring your blood, sweat, and tears. Simply put, you achieve financial independence when you are able to quit your job, yet still maintain a cash flow that will cover your expenses lifelong.
So now that we understand what the financial independence part is, what’s the retire early part? It’s exactly what it sounds like, and it’s whatever you want it to be. Travel the world. Sip on margaritas on sunny beaches. Unlimited family time. Starting the business you said you would. Pursuing your real lifelong passion. Side hustles galore. When you no longer have to spend 40 hours a week slaving away, the possibilities of what you can do with your life are endless.
So what’s this magical, elaborate formula for catching this unicorn called financial independence? It’s actually quite simple. Keep in mind that this is only for those of you looking to seek financial independence. If you’re currently satisfied with where you are financially, or are at peace with working until the “normal” retirement age of 65 or 67, by all means you do you. Otherwise, the simple prescription for FIRE is:
- Get rid of debt
- Spend less than you earn
- Invest the rest
- Achieve financial independence
It’s really that easy! But in case you wanted me to elaborate, here are a few more notes:
While you are young and healthy and able, it is important to work to your full potential. You are in your wealth accumulation phase – the harder you work now, the faster and easier you will make accomplishing the next steps. Don’t be lazy!
If you have debt, you need to get rid of it. Let me rephrase: IF YOU HAVE DEBT, YOU MUST GET RID OF IT! It is alarming how debt is currently accepted as a natural part of life. Consumerism has engulfed every part of society and the invention of credit cards have encouraged debt. Not saving and investing your money makes you a slave in shackles working for the man. Having any debt reinforces those shackles with adamantium. Having debt makes you throw away extra money for nothing – interest adds up quickly. A more detailed post on eliminating debt is found here.
Spending less than you earn doesn’t have to be harder than it needs to be. Frugality. The quality of being frugal. Learn it. Love it. Live it. Make it a goal to save a set percentage of each paycheck. Don’t buy things you don’t need. Buy your freedom instead. Pack lunches to school or work. Use the library instead of buying books. Listen to 30 second ads on free music streaming services instead of paying for premium. Cook meals at home instead of dining out. Move to a cheaper apartment. Work out at home instead of paying for a gym membership. Downsize into a smaller house. Beware of lifestyle inflation. Move closer to work. Ride a bicycle to work. Move to a different state with a much lower cost of living. Huge, drastic changes. But sometimes it’s what you need for a better quality of life! For freedom in the future. Even the small things like packing a lunch, it all adds up! If you can’t afford something with the non-savings portion of your paycheck, you can’t buy it on credit (see debt paragraph above). If you’re saying it’s too hard to spend less than you earn, take a minute and navigate to your online credit card history. How much did you spend on things you didn’t REALLY need? Feel free to comment and tell me if I’m wrong!
Set aside as much as you can from each paycheck to save. But don’t just deposit it into your checking account. Your money isn’t going to make you more money at a bank or under your mattress. You have to make your money work for you by investing. Investing is the only way. And when I say investing, I don’t mean buying and selling the latest hot stocks. I’m not talking about Apple, Google, or Tesla. Or cryptocurrencies. I’m talking about VTSAX. 100%. All done with Vanguard. Check out my “How To Invest” post here. A step by step guide on how to open a Vanguard account will follow soon.
Somewhere between Steps 3, 4 and 5, you will have saved up and invested enough to have “f you money.” Oh yeah, it sounds good and it will feel that good! It’s that amount of money where if you really wanted to, you could quit your job and still survive for a while. No big deal, no worries – you will find a job sometime in the future. Once your “f you money” earns more money than you actually spend, you are set for life and financial independence is yours. Retire as you please.
If you made it this far in this blog post and are still onboard, congrats! You have taken the first steps to becoming financially woke. Currently, my wife and I among Steps 1, 2, and 3. By December, we will be debt free. Our next step will be to live off my wife’s paycheck, and to fully invest mine into VTSAX. I can’t wait for this next step, compound interest and smooth sailing. Follow me on my journey and make sure I stay the course!
Any comments or questions? Please feel free to share and tell me what’s on your mind! How’s your credit card statement look? What’s holding you back from buying your freedom? What are your ultimate goals?