financial independance retire early

The 'FIRE' in 'FIRE Movement' stands for 'Financial Independence, Retire Early' – which is pretty self-explanatory, really. Basically, if you dream of. It's called FIRE, which is short for “financial independence/retire early,” and it boils down to the idea that age no longer dictates retirement. FIRE stands for "Financial Independence, Retire Early." The goal is to attain enough wealth to retire early through a combination of a very.

Financial independance retire early -

Take charge of your financial life.

The FIRE movement -- financial independence, retire early -- is, well, on fire. The FIRE tsunami originated with the classic, "Your Money or Your Life," by Vicki Robin and Joe Dominguez. The book inspires millennials to change their relationship with money, live deliberately, spend mindfully, eliminate debt, save early and build wealth. Bloggers to mainstream media have embraced the FIRE concept of self-determination. Simply take charge of your financial life, get out of the rat race and live according to your own rules.

How to jump on the FIRE bandwagon.

Actually, FIRE is a misnomer as the 'retire early' idea is not the traditional retirement. For FIRE proponents, retire early means have the financial resources to spend your time doing work that is meaningful or contributing to society in the way you design. If you want to jump on the FIRE bandwagon, become financially independent sooner rather than later and have the freedom to craft your own life, explore the following strategies.

1. FIRE starts with self-reflection.

Before embarking on your FIRE journey, "define what financial independence means to you," says Rich Ramassini, director of sales and strategy at PNC Investments in Pittsburgh. Decide if financial independence means that you don't have to work at all. Understand your goals, values and what motivates you toward financial independence and early retirement. Retiring early because you hate your job isn't a sustainable goal, Ramassini says. You need to grasp what you'll do with your time once you hit your financial target. In fact, many FIRE devotees have a calling -- something that they want to do -- after hitting financial independence.

2. FIRE requires a strategy.

First, calculate how much money you will need to reach your personal financial independence goal. That amount can vary widely depending what you want to do with your time, where you'll live, other sources of income and how long you expect to live after retirement. Ramassini explains that some FIRE aficionados estimate that "once your net worth is 25 times your annual expenses, you've achieved financial independence." You can do the planning on your own or consider getting help.

3. With debt, there's no FIRE.

Carrying debt circumvents all other wealth-building strategies. Pay 10 percent interest and even if you earn a 7 percent return on your investments you're still out 3 percent. There are countless ways to pay off debt, along with a variety of companies to help you do so. "If you have student loans, you may be able to take control of them by refinancing them into a better deal," says Robb Granado, CEO of CommonBond in New York. By cutting your interest rate, consolidating the loans and committing to an aggressive repayment plan you can get your debt paid off faster. And, if your employer doesn't offer a student loan repayment benefit, why not recommend one?

4. To attain FIRE, extreme saving is a must.

Extreme saving and cutting costs go hand-in-hand to achieve FIRE, says Bob Dockendorff, vice president of Claro Advisors in Boston. The FIRE community strives to save 40 to 60 percent of their income. For instance, a 25-year-old couple earning $150,000 before taxes might save $50,000 and live on $50,000. Dockendorff explains that if they invest in low-cost exchange-traded funds and earn 7 percent annually, by age 40 they'd have approximately $1.25 million. At that point, with 4 percent withdrawals, they can sustain their lifestyle, Dockendorff says. And they've got the choice to work meaningful and fulfilling jobs, if they choose.

5. Living cheaply is a cornerstone of FIRE.

With saving apps, shared housing platforms, frugality websites and more, there's no excuse for living extravagantly. "Sacrifice is at the heart of FIRE," says Matt Ahrens, financial advisor with Integrity Advisory in Overland Park, Kansas. Cheap living comes in many forms and is inspired by your personal values. Ahrens recommends replacing the annual vacation with a biennial getaway. Buy a car every 10 years -- or 15 -- instead of every seven. "Unless you win the lottery, you're going to need to sacrifice and live below your means," Ahrens says.

6. FIRE proponents slash housing costs.

Housing is typically your greatest expense. In April 2018, the average U.S. home costs $394,600 according to the U.S. census website. Cut your housing costs and the FIRE dream inches closer. The tiny living movement is awash with folks practicing radical downsizing and living minimally in structures the size of a shipping cargo container. You can build and furnish your own tiny home for well under $50,000.

7. FIRE winners invest aggressively.

The stock market has returned over 9 percent annualized for almost a century. That return is tough to beat. If you're looking to retire early, that means you must plan for an extremely long time horizon and choose your asset allocation carefully. "If you are in your 20s, 30s or 40s and plan to retire early, you're likely to live for another 30 to 50 years or more. Over this period, stocks will provide the best long-term growth," says Lawrence Solomon, director of financial planning and investments for OptiFour Integrated Wealth Management in McLean, Virginia.

8. Have a side hustle to provide more FIRE income.

Multiple income streams will cushion stock market drops or surprise expenses. With unexpected financial blips, add a side hustle to dividend, capital gains and potential real estate income.The BNP Paribas Global Entrepreneurs 2016 report states that millennials are starting their own businesses at an average age of 27, younger than previous generations. So, start early and you don't need a giant business such as Facebook (ticker: FB) to become wealthy over time.

9. Automation is your friend.

Finally, if you're serious about FIRE, set yourself up for success. Automate your saving and investing, recommends Levi Sanchez, co-founder of Millennial Wealth in Seattle Washington. Diversify your investments and enjoy the frugal living challenge.



More From US News & World Report

Источник: https://finance.yahoo.com/news/9-tips-conquer-fire-financial-161250358.html

FIRE Movement: Can I Achieve Financial Independence & Retire Early?

Who says you have to work until you’re 65?

By merely questioning that one assumption, you crack open the door to new possibilities. The question raises others, such as:

  • Why did 65 become the default retirement age? Why not 75 – or 50?
  • If you had enough money to retire tomorrow, what would you want to do with the rest of your life?
  • What trade-offs would you accept to make your day job optional?

The FIRE movement attempts to address these questions by encouraging followers to create their own retirement timelines. Here’s what you need to know about the movement, from its pros and cons to creating a formula for reaching FIRE yourself.

What Is FIRE?

The acronym “FIRE” stands for “financial independence and retiring early.” Financial independence, sometimes referred to as financial freedom, is not the same thing as being rich. It specifically refers to the ability to cover your monthly living expenses with passive investment income alone, independent of your job – in other words, not needing a job to pay your bills.

You can be financially independent with a middle-class income and lifestyle or even a modest, frugal lifestyle. If your investments earn you $20,000 per year, and you live on no more than $20,000 per year, you would be financially independent, even if no one would accuse you of being rich.

An important distinction comes to light when you realize you get to choose any age at which to retire: You can spend most of your income on the trappings and appearance of wealth, or you can funnel your income into investments that generate actual wealth.

Too few people – even among personal finance enthusiasts – understand the inverse relationship between feeling wealthy and becoming wealthy. But once you understand that FIRE is a choice, it forces you to reevaluate your priorities.


Benefits of FIRE

Like any popular movement, FIRE has plenty of benefits and its share of critics. The most obvious benefit of pursuing FIRE is not having to work anymore. But many of the benefits are more subtle and stem from pushing adherents to think differently about money.

1. It Challenges the 40+ Year Career Assumption

Most people never question the notion that they’ll work into their 60s. They work full-time, hopefully doing something they don’t hate, and spend nights and weekends with their families and friends. They buy the best houses they can afford, the best cars they can afford, and the best entertainment they can afford.

There’s no introspection and no questioning; just “work, weekend, repeat” ad infinitum – at least until you’re old enough for Social Security and Medicare, and then you can start thinking about throwing in the towel.

Questioning this assumption forces you to think differently about your retirement. Working for four or five decades and spending 90% to 95% of your income is only one option. The FIRE movement posits another: working for one or two decades or less, spending 30% to 50% of your income and saving the rest, and then doing whatever you like.

FIRE argues that working is a choice. It may not be a choice for you today, but whether you need to work 10 years from now is optional if you take the right actions. And that realization puts the responsibility back on you to consciously choose your career and retirement schedule, rather than thoughtlessly following the crowd.

Accepting that responsibility forces you to be more intentional in your priorities. Is it more important to you to spend more money today to feel like you’re rich? Or is it more important to accumulate the assets and freedom to do as you wish tomorrow?

2. It Removes the Constraints of Time & Money

Most people live their lives shackled by two constraints: time and money. They work full-time, so their schedule and free time are dictated by their work, and their money is dictated by their earnings from that work.

But financial independence and retiring early remove those constraints. When work becomes optional, you regain complete control over your schedule and time. You can work part-time, set your own hours, or not work at all. You can earn more money by working more hours or switching to higher-paying work if you like. It’s up to you.

3. It Allows You to Pursue Dream Work

When money no longer dictates your career decisions, more possibilities open up before you. You achieve real freedom: the freedom to stay at home with your kids, pursue your dream job, or volunteer full-time, for example.

I’ve wanted to write novels ever since I was a kid. But I didn’t do it because I didn’t want to be a starving artist. As I make progress toward financial independence, that fear has started receding into the background. Even if I publish a novel that bombs and my mother is the only buyer, I still wouldn’t starve.

What would you do if you had enough money to pay your bills for the rest of your life? Unless you already have your dream job, you’d probably do something different. And that “something different” is what becomes possible when you’re financially independent.

One final thought on the subject of dream work: Many 20-somethings don’t know what their dream work is. For that matter, the same goes for many 30-somethings. So while you figure out exactly what your true calling is in this life, pursuing FIRE will help you pay for it when the time comes.

4. It Forces You to Define How Much Is “Enough”

In my 20s and early 30s, no matter how much money I earned, I always wanted more. I’d get a raise, go out and celebrate with friends, and be ecstatic for a few days. Then that higher income became my new normal, and it wasn’t exciting anymore. After the brief euphoria of moving into a bigger home or buying a better car, I’d go back to being as happy – or unhappy – as I was before.

This constantly shifting baseline is known in psychology as “hedonic adaptation” or the “hedonic treadmill.” It’s why retail therapy only provides a few hours of happiness before leaving you feeling just as empty as before you blew several hundred dollars on clothes, shoes, or gadgets.

Lifestyle inflation doesn’t mean achieving more happiness; it just means spending more money. But pursuing FIRE forces you to define exactly how much money is “enough” as your target for investment income.

And because it takes a high savings rate to reach FIRE (more on that shortly), your idea of “enough” inherently remains grounded in what you need to be happy, not the maximum you can get away with spending at any given moment.


Criticisms of FIRE

For all its proponents, the FIRE movement has its detractors. Some of the criticisms below are legitimate risks you must mitigate before you can retire. Others are merely a reflexive reaction against the new, the disruptive, and the different.

1. You May Run Out of Money

Whether you retire at 30 or 80, you risk running out of money if you didn’t save enough while you were working.

Some investments, such as rental properties and dividend-paying stocks, generate ongoing income with no need to sell off assets. Yet because most of the returns from stocks come from price growth, retirees typically sell off a certain percentage of their stock portfolio every year in retirement, causing it to dwindle over time.

What percentage can you sell off without worrying about running out of money? The unsatisfying answer is “It depends,” but the traditional answer is that at a 4% withdrawal rate, your portfolio will last at least 30 years.

Lower withdrawal rates leave your nest egg intact longer, which means that if you want to retire early, you need more money saved. It’s hardly rocket science, but what is surprising is that you don’t have to lower the withdrawal rate by much for your nest egg to last indefinitely.

According to historical stock market performance, a 3.5% withdrawal rate will allow your nest egg to grow forever; see this explanation of how safe withdrawal rates work for details.

My Take

Running out of money is a risk of retirement in general and not unique to early retirement. No one should retire without fully understanding how much money they need to have saved and invested, regardless of their age.

2. You May Retire With Too Little Income

Just because you can live on $5,000 per month today doesn’t mean that you can live on it next year or 30 years from now. This is due to two factors: the risk of inflation and the risk of unforeseen future expenses (more on the latter shortly).

In the case of inflation, you should be taking it into account with your nest egg planning. For example, when financial planners calculate safe withdrawal rates, they adjust for inflation each year, growing the annual withdrawal by 2% or so.

I particularly like rental properties for ongoing income since rents rise alongside inflation. And since fixed-rate mortgage payments remain the same, your profit margin on rentals grows faster than the overall pace of rent or inflation growth.

My Take

Again, future income growth and accounting for inflation are fundamental to retirement planning in general. Investors should learn how to protect against inflation, regardless of when they plan to retire.

But early retirees have a unique advantage over their older counterparts: They can go back to work if need be. A person who retires at 40 can change their mind two years later and start earning an income again. A person who retires at 70 has a harder time going back to work.

3. You May Not Budget Enough for Future Medical Expenses

Most 40-year-olds have relatively low medical expenses. The same can’t be said for most 80-year-olds.

Adults must expect higher medical costs as they age and their health deteriorates. It’s part of retirement planning, just like making sure your nest egg doesn’t run dry, regardless of your retirement age.

Keep in mind that you qualify for Medicare at age 65, so by the time you reach the traditional retirement age, you can still ease your health care costs with Medicare. That said, if you didn’t work enough years to qualify for Social Security, you may be required to pay for Medicare.

My Take

Between the day you retire and your 65th birthday, you’re going to need to cover your own health care costs. Even after they qualify for Medicare, many people opt to buy extended coverage, commonly referred to as Medicare Advantage. Budget accordingly and plan on higher medical expenses as you age.

One approach is to review health care options for the self-employed. You can also use an HSA through Lively to combine a high-deductible insurance policy with your own flexible health savings investments.

Some people take relaxed, fun part-time jobs that offer health insurance. And many people who reach financial independence never retire fully. They simply switch to a dream job with a lower salary – a dream job that ideally includes health coverage.

4. You Lose Decades of Compounding & Wealth Building

When you retire, you stop earning and start relying on your investments to cover your bills. That means you stop investing fresh money into them and start withdrawing money instead, which means no more compounding returns.

Compounding is incredibly powerful, but it takes time to work its magic. Consider two people who both start working at age 22 and invest $10,000 per year every year of their careers:

  • One of them works a traditional 45-year career and retires at age 67. At a 10% average annual return, they retire with an impressive $7,907,953.
  • The other retires at 42. With only 20 years of contributions and compounding, their nest egg is less than a tenth as large at $630,025.

My Take

First, not everyone wants to be rich. Some people would rather retire young with a modest lifestyle than work 25 years longer to have a wealthy lifestyle.

Second, the math in the two examples above assumes that each worker is investing the same amount every year. But that’s not how FIRE works; people pursuing FIRE intentionally budget for a high savings rate to maximize their investments. They effectively swap in a high savings rate for compounding.

A better comparison would be that the FIRE seeker invests $30,000 or $40,000 per year for 20 years, in contrast with the traditional worker’s $10,000. After 20 years at 10% returns compounded, the FIRE seeker would have $1,890,075 if they invested $30,000 per year and $2,520,100 if they invested $40,000 per year. That’s still less than the 45-year-career worker, but it’s nothing to scoff at.

Finally, keep in mind that most people who pursue FIRE don’t stop working and earning entirely; they merely change careers. In fact, they may well decide to work for more years than their traditional counterparts since they’re pursuing their dream work.

5. You Live for the Future, Not the Present

If you scrimp and save and sacrifice today so that you can have a brighter tomorrow, aren’t you living in the future and not the present? For that matter, what if you get hit by a bus and never see that brighter future?

We all must walk the delicate balance between planning for the future and living in the moment. But when you invest so much of your money and energy in building passive income for tomorrow, it can be easy to lose sight of the joys of today.

My Take

Frugality and a high savings rate don’t necessarily mean sacrifice, nor do they mean you don’t live in the present. Living in the present requires mindfulness, not money.

The simple fact is that if frugality makes you miserable, then FIRE is probably not for you. The entire point of FIRE is freedom, intentionality, and prioritization. If your priorities involve spending most of your income, there’s nothing wrong with that, but you probably aren’t a good fit for FIRE.

Alternatively, if you don’t mind front-loading your frugality and living a leaner life while you’re young, you can enjoy the fruits of that frugality later in the form of financial independence. Living lean doesn’t have to mean ramen noodles every night, but it does mean spending less than you could afford to so you can save and invest more money.

6. FIRE Is Only for [Insert Identifier Here]

It’s easy to dismiss FIRE as something that only other people can attain because then you don’t have to re-evaluate your own spending and financial goals. The dismissal goes something like this:

  • “Only people with six-digit salaries can afford to reach FIRE.”
  • “Only single people can reach FIRE.”
  • “Only married people can reach FIRE.”
  • “Only people without kids can reach FIRE.”
  • “Only white male millennial tech workers living in Silicon Valley who wear square ties can reach FIRE.”

And so on. They all boil down to a single justification pointing to some external reason why it’s not realistic for you to reach FIRE, taking all of the responsibility off of you.

My Take

Of all the criticisms of the FIRE movement, this one contains the least truth.

Yes, the more you earn, the faster you can theoretically reach financial independence. But spending habits are hard to break, and high earners grow accustomed to high spending. In some ways, it’s easier to earn more and hold your spending steady than it is to cut your spending in half.

Whether you’re married, single, have kids or don’t have kids, each status has its advantages and disadvantages for reaching FIRE. Having two incomes can help, but only if your spouse is equally committed to financial independence. And many families live on a single income.

The same goes for race, gender, work type, and any other identifier you want to swap in. When you stop pointing to external reasons for why you can’t do something and accept that your own decisions determine your outcome, it’s both freeing and terrifying.

You’re behind the wheel, and you get to choose where you want to go and how fast you get there.


The Formula to Reach FIRE

If anyone can reach financial independence and retire early, then how can you do it?

There are many paths to FIRE and many strategies for building passive income, but they all share common denominators. Here are the key steps to take.

1. Set a Target for Spending & Passive Income

To get anywhere, you first need to know where you want to go. Set a target for passive income, starting with the minimum amount you can spend each month and still be happy. After reaching financial independence, you can always choose to keep working, earning, and building more passive income.

By way of example, let’s say you want $4,000 per month in passive income. Now that you have a target, you can start figuring out how to reach it.

2. Set a High Savings Rate

The gap between what you earn and what you spend is one of the most critical numbers for building wealth, not just for FIRE. Look for ways to spend less and save more.

In particular, three costs make up roughly 70% of the average American’s budget, according to the Bureau of Labor Statistics: housing, transportation, and food. These three expenses offer the greatest room for savings.

For example, you could take a job that provides free housing to reduce your housing costs. You can try one of these 10 ways to minimize your transportation costs. You can bring your lunch to work and save hundreds of dollars per month. There’s always a cheaper – or even free – alternative to traditional spending. Look no further than these options for traveling the world for free.

To reach FIRE in five or 10 years, aim for a savings rate of 50% to 70% of your income. It’s not easy, but if it were easy, everyone would work for five years and then retire.

3. Maximize Your Active Income

The more you earn, the more you can save. Start working on getting that promotion or raise, find a better-paying job, or even change careers to earn more.

And your income potential doesn’t end with your full-time job. Look into side gigs to generate extra money. You can even turn your hobby into a money-making business.

The trick is to avoid lifestyle inflation and not spend more just because you start earning more. All that additional income should go straight into income-producing investments.

Pro tip: If you’re looking for a way to make some extra money on the side, consider Instacart. With Instacart you’ll earn extra income going grocery shopping for others. Since you’ll be able to set your own hours, you can work as much or as little as your schedule allows.

4. Invest for Passive Income

From dividends to rental properties, private notes to art (yes, you can even invest in art through Masterworks), crowdfunding websites like Groundfloor to bonds, you have plenty of options for generating passive income.

Personally, I like rental properties for high-yield income and stocks for diversification and long-term growth. One enormous advantage of rental properties is that you can leverage other people’s money to build your portfolio of income-producing assets.

For example, say you take $25,000 and use it as the down payment to buy a fixer-upper for a rental property. You cover closing costs with a seller concession and finance the renovation costs with a hard money loan. Upon completion, you refinance the property with a cheaper long-term mortgage and pull your original $25,000 back out.

You now have a property generating monthly income with no net cash investment from you. You can repeat this process indefinitely, creating a new stream of passive income with each property. It even has a fun acronym in the world of real estate investing: BRRRR, or “Buy, Renovate, Rent, Refinance, Repeat.”

Pro tip: If you’re interested in real estate but don’t want to own physical property, look into DiversyFund. It allows you to build wealth through commercial real estate, and you can get started with just $500. Sign up for DiversyFund.

5. Know Your FIRE Ratio

As they say in business, that which gets measured gets done.

In addition to your savings rate, one crucial number to track is your FIRE ratio, otherwise known as a FI ratio. It’s the percentage of your monthly expenses that you can currently cover with your passive income.

For example, if your monthly expenses total $4,000, and you currently have $400 coming in from investments every month, you have a FIRE ratio of 10%.

When your FIRE ratio reaches 100%, pop the champagne cork because you’re financially independent. You can retire and never work another day if you like. Or you can keep working, either in your current career or a fun, low-stress second career.

I also like to track my net worth through the budgeting app YNAB, though I acknowledge that it’s largely a vanity metric. For financial independence, your net worth is only as relevant as its ability to generate ongoing income for you.

Finally, keep an eye on your asset allocation as well. At the beginning of your journey to FIRE, your investing strategy should focus on growth regardless of short-term volatility.

After all, if the stock market drops by 20% while you’re working, it’s no skin off your back – quite the opposite since you’re buying rather than selling at this point in your career. But as you get closer to retirement, income stability and reliability become more important. Without your full-time job to pay your bills, you become vulnerable to sequence of returns risk.

Look for ways to reduce risk in your stock investment portfolio as you get closer to retiring, regardless of your age.


Final Word

When you retire young, don’t expect help from Social Security or Medicare. You won’t qualify for many years, if at all.

Of course, the purchasing power of Social Security benefits has been declining for decades, losing 30% between 2000 and 2020, according to The Senior Citizens League. And the Social Security Administration admitted in 2018 that its spending deficit puts it on track for insolvency by 2034.

As for health insurance, if you retire young, you can exercise the same health insurance options as the self-employed.

A 50%, 60%, or 70% savings rate is not easy. It’s not fun to drive a 10-year-old beater while your friends drive brand-new BMWs. But it’s a lifestyle choice based on priorities: Would you rather build enough wealth to retire young, or would you rather spend most of your paycheck now?

There’s no wrong answer. But those willing to spend less today get to play tomorrow while their colleagues continue grinding away at work.

Источник: https://www.moneycrashers.com/fire-movement-financial-independence-retire-early/

What to do in your 20s to retire before 40? Is it really possible?

how to retire before 40sKnow what to do in 20s to retire before 40s

Bored of 9-5 job? And want to retire early in your 40s, or even earlier? Well, you may not be the only one thinking on this line. Discussions around retirement before the 40s may be relatively new for India as the predominant mindset here is of retiring at 60 or 58. But in the US, almost a kind movement to retire early has been going on. Many individuals have tried to reach this goal of retiring at 40. Before setting such a goal, however, few questions you should ask yourself: Do I really want to retire before 40? Is it really possible? Recently at a retail investor-focused online event ‘Thrive’ organised by Groww, CA Rachana Ranade delved deep into this topic with some interesting insights. Here is a summary and key points from her session that may help you if you are also planning to retire before 40s.

“In the USA, this movement (of retiring before the 40s) started very predominantly where people were more interested to slog, to earn, to spend with very very conscious efforts and then try and save a lot of money and retire rich early,” Ranade said. She added that this movement was called FIRE – Financial Independence & Retire Early – movement. There were two elements of this movement: Financial Independence and Early Retirement.

Related News

Without financial independence, one cannot retire early. But what does this financial independence mean? There are multiple interpretations of financial independence:

1. Financial independence is basically based on the concept that instead of you working for money, money should work for you. It is said that when your passive income is more than your active income, you may say you have achieved financial independence.

2. You don’t have to depend on a 9-5 job. There should be other sources earning revenue for you.

The FIRE movement was based on three parameters: Extreme savings, Frugality and Generating a passive income.

You might have heard of the 50-30-20 rule, which basically means 50% of your income should go for your needs, 30% for wants and 20% towards savings. If you go by this rule, Ranade said you may not be able to retire before 40. For that, the FIRE movement prescribed that 50-70% of total income should go towards savings. So what are the three steps you should take to retire before 40? Learnings from the FIRE movement can be summed up in three points:

First, Determine your saving percentage: You should be prepared to save up to 50-70% of your total income.

Second, calculate your target retirement corpus. Wondering how much you would require on retirement? Well, Ranade said that under FIRE, they gave a formula to calculate this: Multiply total annual expenses with 25 to find the retirement corpus you may require. For example, if your annual expenses is Rs 10 lakh, you would require Rs 10 Lakh x 25 = RS 2.5 crore as a retirement fund under FIRE.

Third, find out how long will it take you to reach the goal.

There are three approaches prescribed under FIRE:

Lean FIRE: Try to minimise your expenses and maximise savings.

Fat FIRE: Spend a little more. Under this, you will be able to retire early but not as early as you want.

Barista FIRE: In this, you save enough money which will allow you to retire early. At the age of 26-28 years, try to get that much money to go head with your own business/startup. If your startup clicks, you may be able to retire before 40.

All of the above concepts were made famous in the US. But in the Indian context also you can calculate what you require to retire early. While doing all these things, there are certain points you required to follow to retire early:

  • Redirect your cash gifts or pocket money. Better put them in a bank account or invest.
  • Career planning: Plan your career very early. Start planning at an early age. If you execute your plan well, chances of success and reaching the goal would be fairly higher.
  • Avoid or have minimum Debt. There are many people who think that credit card is a must. Well, the credit card is a good thing if you spend wisely. But if you are using your credit card without giving a second thought, it will be very bad for you. If possible try to avoid a debt if it is not really required.
  • Reduce your spending. For that follow a “magical formula: Instead of following the “Income-Expenditure = Savings” formula, follow “Income-Savings = Expenditure” formula. That is, set a saving target from whatever you are earning and spend the remaining amount. In that case, you will be able to attain the concept of FIRE at the right age.
  • Get yourself insured: You need to do this so that your dependents are taken care off in case of an emergency. If you are not insured, whatever you have saved for a long time may go for a toss if there is a medical emergency in the family.
  • Build an emergency fund: No matter how much you are investing or earning, an emergency fund is something that is a must.
  • Have a backup plan: If one plan doesn’t work, you should have another plan to reach your goal to face situations that may be beyond your control.

Ranade further suggested that you should never withdraw interest earned on a deposit. Let it remain invested to earn interest on interest.

How to diversify portfolio

Ranade shared different case scenarios for explaining how to diversify the portfolio:

If you are a young employee with no dependents:

50% equity scheme, 20% direct equities, 10% index ETF, 10% international fund and 10% liquid scheme. Your maximum investments should be in equity. There is a thumb rule: “100-your age” should be the proportion of your investment in equity.

If you are the only income earner in the family and 2 kids going to school:

40% in equity scheme/direct equity; 20% in index ETF, 15% in FDs, 15% in Debt scheme and 10% in liquid scheme.

Single income family with not yet settled grown-up children

30% equity scheme, 10% direct equities, 20% index ETF, 20% Bank FD, 20% debt scheme, 10% Liquid scheme

She said that the above are just examples as there is no one thumb rule. Had it been so, why would there have been portfolio managers? Ranade quipped.

You should check based on your own background and then you can decide on how to diversify your portfolio.

Big question: Why you want to retire early?

Ranade said that before setting an early retirement goal, you should ask yourself why you want to retire early? Is it really really required. You should ask yourself: Whether you love your job? Are you passionate about it or not? Life is uncertain. It is a wholesome concept. “People are just going mad behind earning money. Dont do that. I feel that if you are doing a job which you love, retiring at 50 or even retiring at 60 will not be a problem,” she concluded.

Thrive by Groww is an initiative to bring the smartest minds of India to talk about money. Aimed at retail investors, the virtual event was held on March 20, 2021.

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Источник: https://www.financialexpress.com/money/what-to-do-in-your-20s-to-retire-before-40-early-retirement-planning-in-india/2224794/

I want to join the FIRE movement, become a supersaver, and retire early: Here's how I plan to start

As someone who often writes about how others can save money for retirement, I've never actually given much thought to when or how I'll leave the workforce myself. So when deciding on ways to secure my financial future, I figured jumping right in the flames would be a good way to start.

In other words, I'm going to try "FIRE," or the financial independence, retire early movement, which calls for people to save huge chunks of their income while they're younger in order to retire in their 30s or 40s. This mindset, which requires being frugal and extremely budget savvy, is gaining steam with everyday Americans and has made luminaries of people like "Financial Freedom" author Grant Sabatier.

Supersavers put away 50% or more of their income and live on what's left. Based on my past vices, like spending $2,300 a year on Starbucks and loving it, I think I can safely say I'm not one of them. Yet.

Still, since the idea of trading in my computer keyboard for a West Coast cabana sounds pretty nice, I'm giving FIRE a shot.

Video by Stephen Parkhurst

Deciding which FIRE to burn: The traditional method vs. the 'lean' way  

There's more than one way to go about this, so figuring out which method will work best is key. While FIRE is all about financial freedom, it will look different for everyone depending on their goals.

There are several variations within the community. I narrowed it down to two:

  • Traditional FIRE: With the standard technique, savers determine what their expected annual expenses will be after they leave the workforce, then multiply that number by 25 to reach a comfortable retirement amount. Choosing this route means I can only spend 4% of my savings each year but will conceivably not run out of reserve funds, barring a big unexpected expense. Retired Americans ages 65 and older spend about $50,220 annually, notes the Bureau of Labor Statistics. Using that marker, I'd need to cache $1.2 million to live out my golden years comfortably.
  • Lean FIRE: This method focuses on a minimalist lifestyle and lean budget. The idea is to save more money now and spend less later. People using this strategy reevaluate their expenses to cut costs while they're working and often live off $40,000 a year or less after calling it quits. The advantage: It doesn't take as long to store the funds you need. The downside: I would have to move to a cheaper state, sell my car, and possibly eat rice and beans every day to cut down costs.

I'm planning to start slow

Even if you do manage to save a lot of money while you're young, those dollars will have to last the rest of your life. While I can definitely get behind the idea of sipping margaritas on a beach somewhere when I'm older, I don't want to deprive myself of good food and drinks right now.

So I'm going the traditional FIRE route, and the first step is customizing my number. I started off by playing with the numbers on Grow's retirement calculator, which specifies a goal based on your age, income, current savings, and outside factors like inflation. Then I compared that to what 25 times my post-work life spending would be and found an amount I felt comfortable with.

To maintain a smooth post-work life (assuming I retire at age 67), I need to save about $1,100 a month. Since I'm in my 30s, if I'm aiming to retire before age 50, I need to amp that up. Here are the steps I'm going to take.

Keep expenses low. I have to trim my spending. I can't see myself eating mostly ramen (and neither can my doctors), but I can manage to swap a dinner out each week for a less expensive homemade meal. 

Video by Jason Armesto

Reducing how much I spend on food, streaming services, and even housing can help, but Idon't necessarily need to go to extremes, since there are other ways to improve my financial picture and get closer to my goal.

Boost income. Getting a side hustle or part-time job is a great way to earn extra cash. I don't think I'll have the bandwidth for that, but I'm planning to look for other ways to up my income. Namely, taking advantage of any raise or cost of living salary increase that presents itself.

Pay down debt. Along with millions of other borrowers, I owe part of the collective $1.7 trillion outstanding student loan debt. I also have a credit card balance and other bills I need to pay. Part of the money I save from cooking at home, driving less, and taking a break from bingeing "American Horror Story" I'll put towards those financial priorities.

Prioritize investing. Investing is also an important step. For a lot of Americans, that means building and diversifying a portfolio of stocks and bonds that can weather market volatility. That's included in my plan, though I'm really aiming to pay myself first by contributing to my 401(k) and other vehicles that benefit from compound interest.

I'm going to focus on the big picture

You don't have to be super rich or money savvy to start saving more, and more ambitiously, for your future. It does help to have resolve, though, and to be OK with being the odd one out in your social group.

"My friends were all going out, spending a ton of money — I lived in a crappy apartment and drove a crappy car," Sabatier previously told Grow. "The biggest challenge on the financial independence path was to choose to live my life differently than the other people in my life."

Detractors argue that FIRE is for high earners and extreme penny pinchers. It seems to me that the movement is about changing your individual lifestyle to match your financial aspirations, and I think I can do that. I don't know how easy my journey will be, but laying the groundwork should help light a spark.

More from Grow:

Источник: https://grow.acorns.com/fire-retirement-journey-how-im-starting/

Want to Become Financially Free? The FIRE Movement’s Saving Plan Can Help You Get There Sooner Than Expected

Two people jumping over a bonfire

How does retiring in your 40s sound? Or 50s? Probably too good to be true, right?

Even though Social Security benefits can kick in at age 62, most Americans don’t expect to leave the workforce until years (or even decades) after that. A big reason why: The need to save a significant amount of money for retirement.

But the FIRE movement — Financial Independence Retire Early — is empowering people to quit full-time work and retire earlier than that … like, way earlier. Sometimes in their late 20s or 30s.

Not surprisingly, there are some pros and cons to building wealth this way, like living a bit more frugally than you’d like to now, so you can save more money for later. But it’s an intriguing lifestyle that’s gathering momentum.

Is it right for you? Read on to learn more.

Who started the FIRE movement?

As mentioned, FIRE stands for Financial Independence Retire Early. But we didn’t start the FIRE.

The movement can be traced back to the early 1990s and is attributed to Vicki Robin and Joe Dominguez, co-authors of “Your Money or Your Life,” a book that details how to live a modest life and reduce your dependence on money, freeing you from a life spent on the 9-to-5 work clock.

Robin and Dominguez created a lifestyle and grassroots movement aimed at reducing consumerism and teaching people about how simple living could help them gain financial independence.

Then, in 2011, Mr. Money Mustache, a blog written by Peter Adeney, helped the movement further grow in popularity. In his blog, Adeney detailed how he and his wife each earned about $67,000 as software engineers and lived frugally, spending only about $27,000 a year. They socked away the rest in savings or investment accounts and retired at 30. Since then, the blog has seen over 35 million unique visitors and launched FIRE into the zeitgeist.

The movement continues to grow with thousands of FIRE blogs, annual conferences, retreats, and millions of FIRE practitioners all over the world.

What is this FIRE lifestyle?

Participants rely on a simple formula to reach financial independence within a short time period:

  • Saving 50 to 70% of their income
  • Living frugally
  • Investing in low-cost stock index funds

But how can you know you’ve built up enough of a cushion to retire so early? FIRE practitioners use a formula known as the 4% rule.

What is the 4% rule?

This ultra-conservative framework, traced back to a few professor’s from Trinity University in the late 90s, provides the foundation for the FIRE movement’s investment strategy. Here’s how it works.

To make sure your money lasts through your lengthy retirement, the FIRE community sticks to what it calls the 4% safe withdrawal rate (or 4% rule for short).

It assumes that you’ve invested the majority of your money in stocks and other assets that grow at a rate of 7% each year (a.k.a. your passive income) before inflation. Inflation reduces that by 3% on average, leaving you with 4% to withdraw and spend without touching your principal, which continues to grow.

Want to visually see the power of your savings rate and the real possibility of early retirement? Go to Playing with Fire Retirement calculator.

Common misconceptions about the FIRE lifestyle

Everyone’s financial situation is different, and the rules of the FIRE movement aren’t set in stone. If you can only sock away 20% of your income one month but circumstances allow you to put aside 50% another month, it’s all good.

Remember: This is about YOUR financial independence. Spending more now to pay off high-interest credit-card debt could leave more of your money earning interest in the long-term.

And just because FIRE has “retire early” in its name doesn’t mean you can’t work. A big part of the movement is about flexibility, making full-time or part-time work optional since you don’t necessarily need the money. In turn, it can make the work more enjoyable.

A part-time gig or starting your own business are just a couple of the ways you can supplement your retirement income while still in living the retirement lifestyle.

If you do this though and are closer to the standard retirement age, you’ll want to first see how it impacts your Social Security, as additional income could affect benefits.

Does the FIRE movement allow for flexibility based on my personal financial situation?

The FIRE movement isn’t for everyone. But if you focus on ways to reduce your living expenses by even a few percentage points (and redirect that money into an investment account), it can reap long-term financial benefits.

Whether you’re interested in going all in on FIRE, lean FIRE, or no FIRE whatsoever, there’s still an important lesson to take from the concept: Thinking about retirement early can get you on the right financial path for whenever your post-work time comes. Setting financial goals, investing your money in a retirement account, making smart investment decisions, and living within your means can pay dividends to your future self.

Playing with FIRE

We’re always on the lookout for innovators who can provide new ideas, tips, and strategies to help you make sense of the today’s digital world and achieve your best financial future. To that end, we are excited to support Playing with FIRE — the first documentary about the financial independence movement. This documentary captures the truths and dispels the myths of what it feels like to embrace FIRE and follows one family’s journey to acquire the one thing that money can’t buy: a simpler — and happier — life.

Watch the documentary today!

Источник: https://www.ally.com/do-it-right/life/the-fire-movement-financial-independence-retire-early/

How to Retire at 40: Financial Independence Retire Early (FIRE) Movement

When you are young, retirement might not seem like something to worry about. The retirement age in India varies between 60 and 65 years. So, you will work all your life, and then one day, your employer will say, “Thank you so much. Your services are no longer required.” And then you will live the rest of your life with the money you saved up. Sounds simple, until you realize that it does not leave much room for living your life. What about your aspirations—the books you wanted to read, the paintings you wanted to make, the vacations you wanted to go on?

This is from where the idea of early retirement arises.

A change in perspective

To retire early, you first need to change your perspective. You must believe that the meaning of retirement is not the end of your career but the beginning of your life. So, do not wait to retire when you are old; do it when you can afford it. If you want to retire at 40, the target should be to achieve financial freedom.

What is financial freedom?

It is a stage of life where you do not have any debts and have enough savings to lead a comfortable life. Financial freedom allows you to get a job that you love or not work at all. A popular concept to achieve that goal is Financial Independence Retire Early (FIRE).

What is FIRE?

The idea of FIRE is simple; you can retire early as long as you concentrate on extreme savings and building a substantial fund with investments. The goal is to pay off all your debts and start generating passive income before retirement. So, you might have to practice frugal living today to enjoy a comfortable life tomorrow.

Now, the big question is, “how much money should you have post-retirement?” This can be answered with the idea of a safe withdrawal rate, a formula introduced by William Bengen in 1994. It is known as the 4% rule. According to him, your retirement fund should be 25 times your annual expenses, which allows you to withdraw 4% from the fund every year. This gives an idea about how much money you would need when you retire.

Lessons from FIRE movement

The FIRE movement has a lot to teach about planning and saving for retirement. Check out the below points carefully before you start implementing the concept.

  • Start financial planning for retirement early. When your target is clear, it is easier to achieve it.
  • Control your expenses. The lower you spend; the higher will be your savings.
  • Find additional sources of income. Part-time jobs can help you save more.
  • Make saving and investing a habit. FIRE encourages you to use a large portion of your income for these purposes.

Why does FIRE not work for everyone?

Proper retirement planning is for all, but the same method cannot work for everyone equally. One of the drawbacks of the FIRE theory is that it assumes you have a large income. Without it, there is no way to build up considerable wealth before turning 40. Moreover, the 4% rule works only if you spend the same amount every year. It does not take inflation and financial emergencies into account. You also may even have to give up on some of your dreams, like traveling to foreign countries or buying expensive things. So, FIRE does not work for everyone.

How the calculations can be adjusted to the Indian context

William Bengen’s idea of a safe withdrawal rate was based on the Western culture, financial system, and lifestyle. So, it is obvious that the theory will not entirely work in a country like India, where the inflation rate is high and income tax slabs keep changing regularly.

If you want to make an early retirement plan in India based on FIRE, you need to adjust the formula slightly. A retirement fund worth 25 times your annual expenditures will not be enough. It needs to be at least 30 times your yearly expenses. But how much money will you need exactly? Let us calculate that with an example.

Assume your current age is 25 years and your monthly living cost is ₹50,000. If you want to retire by 40, you have 15 years left to accumulate the retirement fund. If the inflation rate is 6%, your monthly expenses will rise from ₹50,000 to ₹1.20 lakhs by the time you turn 40. This means you will need ₹14.40 lakhs a year to maintain your lifestyle.

By this calculation, you should have a little over ₹4.30 crores by the age of 40 to attain financial freedom. Saving alone will not help you reach that mark unless you start investing in profitable financial products today. You must put ₹12.61 lakhs a year in an instrument that offers an annual 9% compound interest to accumulate ₹4.30 crores in 15 years. And this will require you to set aside ₹1.05 lakhs per month, starting from today.

Steps to follow for early retirement

Before you start the financial planning for retirement, you must consider the factors given below:

  • Define retirement: Determine how retirement looks for you. You must decide whether you want to stop working entirely or do something that you like.
  • Calculate your expenses: To begin with, you must estimate your yearly expenses. Take note of every outflow carefully. Once you have a precise number on paper, planning your retirement will be an easy process.
  • Lead a simple life: Aggressive savings and investments are the only ways to build a large retirement corpus. So, you must significantly lower your monthly spending and try to lead an inexpensive life.
  • Make investments: You cannot save up enough for retirement without passive income sources. So, you must invest in financial products that can offer high and stable returns, like Public Provident Funds (PPFs) and mutual funds.
  • Pay off loans: Make sure that all your debts are paid off before turning 40. You do not want that financial responsibility after retirement.

Achieving financial freedom is possible if you start investing early. Although it is essential, it does not mean you should compromise your lifestyle in the process. You can create a considerable retirement fund with proper planning and diversified investments. But, if you feel like going on a trip or buying a new phone, do not deny yourself that joy. You can make a financial adjustment later; remember, you only live once (YOLO)!

In this article

Millions By Jupiter, Financial Planning

Источник: https://jupiter.money/resources/how-to-retire-at-40/

FIRE and home buying: Can you retire early with a mortgage?

FIRE and homebuying can go hand in hand

If you follow the FIRE method (financial independence, retire early) and plan to retire earlier than your peers, you might be wondering: Can I buy a house with a mortgage?

A mortgage is a huge debt – the biggest most people take on in their lives.

FIRE advocates paying off debt as quickly as possible and saving most of your income. So it might seem impossible to follow these mandates and buy a home.

But in fact, the experts say it’s possible if you follow a few key rules. Here’s what to do.

Verify your mortgage eligibility (Nov 29th, 2021)


In this article (Skip to...)


How the FIRE method works

The basic idea behind FIRE is simple: Save between 50% and 75% of your income, starting as early as possible in your career.

That way you can retire at a relatively young age – possibly even in your 30s or early 40s.

Of course, it’s not an easy goal.

Retiring early involves cutting your expenses and living frugally, while also raising your income as much as possible. Serious FIRE followers will even work multiple jobs if necessary.

The FIRE method also calls for paying off existing debt as soon as possible.

This includes revolving debt from high–interest credit cards, student loans, auto loans, personal loans, and other debt.

Buying a home can be part of your ‘retire early’ plan

Once your accumulated savings equate to 25 to 30 times your annual living expenses (commonly $1 million or more), you can work less or stop working altogether.

But you don’t put these savings into just any account.

You need to put this money to work for you by investing in the stock market and real estate – vehicles that will likely yield a higher rate of return over many years.

Real estate can be an important part of your investment portfolio, especially if you plan to earn passive income from renting out properties you own.

But buying a home or other property typically creates a lot of debt. So how do you square that purchase with the FIRE methodology?

How to achieve FIRE with a mortgage

Financing a home with a mortgage loan will create debt.

But it’s possible to buy property and follow FIRE if you choose the right home in the right location with the right mortgage.

Choose a shorter loan term

“You need to live in a low–cost location. And you need to try to pay off your home in 10 to 15 years,” says Caleb Liu, owner of HouseSimplySold.

“That means making accelerated payments toward the principal of your 30–year mortgage. Or it means taking out a 15–year mortgage or refinancing to one.”

Invest your savings instead of paying with cash

Brian Davis, director of education for SparkRental, suggests another strategy.

“Say you’ve saved $200,000 in cash,” says Davis.

“Instead of using all that money to buy a home, take out a 30–year mortgage loan at today’s 3.5% interest rate. This will cost you [about] $900 in monthly principal and interest payments.

“Then, take the $200,000 you’ve saved and invest it, ideally for a 10% return based on current market performance. You’ll earn [about] $1,700 a month – an $800 surplus after you’ve paid your mortgage.”

Either scenario beats renting, which costs more in many markets than it does to buy and own a home.

And remember that renting won’t earn any equity or tax breaks like owning a home can.

Verify your home buying eligibility (Nov 29th, 2021)

Get out of debt before buying a home

If you’re serious about “financial independence, retire early,” it might mean waiting a little longer to buy a home.

Before you buy a home or attempt to prepay your mortgage, focus on getting rid of your other outstanding debts.

“The FIRE method involves paying off your debts, starting with the highest interest rate obligations first,” says Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College.

Scott Bates, finance expert at MoneyandBills.com, agrees.

“If you are debt–free before applying for a mortgage, it allows you to save up a really big down payment. This will most likely result in a faster loan approval.”

“Plus,” he says, “you’ll have more equity in the property from the start and less to pay back.”

Lower debt means a lower mortgage rate

Carrying less debt when applying for a mortgage could make your home loan less expensive, too.

“Your credit score can be lowered by having large amounts of debt. A lower credit score will make you a higher credit risk to the lender,” Bates explains.

“They’ll give you a slightly higher interest rate in this case, which will cost you more in interest payments. And to lower these costs, they might charge you points, which will make your closing costs more expensive.”

“Every 40–point drop in your FICO score results in a 0.25% to 0.30% increase in your mortgage rate,” says Liu.

Verify your new rate (Nov 29th, 2021)

Tangible steps you can take toward FIRE and homebuying

Want to own a home now and reach your FIRE goals down the line? It’s doable, but you’ll have to make sacrifices.

“Many folks who make less than $50,000 a year will find it hard to save 50% to 75% of their take–home pay,” cautions Baker.

Bates says the FIRE method works best for disciplined singles and couples.

Raising a family, getting a divorce, suffering from costly health problems, or enduring a recession or long–term bear market could make it extremely hard to achieve FIRE.

Liu suggests the following tips:

  • Put every spare dollar you can save into a worthy investment vehicle. Look into stocks, bonds, mutual funds, and exchange–traded funds with a good track record
  • Explore real estate investments like rental properties, too. Aim to achieve at least 8% annual returns, which is better than paying off your 3.5%–4% mortgage early
  • Max out on any IRA, 401(k), or other retirement fund you’re allowed to contribute to, as well as any matching retirement fund contributions your employer offers
  • Consider cheaper real estate. Buy a smaller home in a more affordable location
  • Amp up your earnings. Aim for a promotion or raise, or look for a higher–paying job elsewhere. Take on a side gig or two, if you can

And as a general rule of thumb, try to decrease your expenses as much as possible in daily decisions like where you eat and what you drive.

Low mortgage rates let you pay off your home sooner

One important thing to keep in mind is that mortgage rates are exceptionally low right now.

That makes it much easier to buy a home and get out of debt early.

When rates are low, it’s possible to opt for a shorter, 15– or 20–year mortgage and still have manageable payments.

Or, you can opt for a low–rate 30–year mortgage with smaller payments, and just pay a little extra whenever you’re able.

This method is a more flexible than opting for a shorter–term mortgage and gives you some wiggle room if times are ever tough.

To get an exact estimate of your mortgage rate and payment, chat with a mortgage lender about your options.

This is the best way to get a clear picture of your budget and decide whether buying a home is the right move for you.

Show me today's rates (Nov 29th, 2021)

Источник: https://themortgagereports.com/62724/fire-and-home-buying-retire-early-with-a-mortgage

youtube video

Take charge of your financial life.

The FIRE movement -- financial independence, retire early -- is, well, on fire. The FIRE tsunami originated with the classic, "Your Money or Your Life," by Vicki Robin and Joe Dominguez. The book inspires millennials to change their relationship with money, live deliberately, spend mindfully, eliminate debt, save early and build wealth. Bloggers to mainstream media have embraced the FIRE concept of self-determination. Simply take charge of your financial life, get out of the rat race and live according to your own rules.

How to jump on the FIRE bandwagon.

Actually, FIRE is a misnomer as the 'retire early' idea is not the traditional retirement. For FIRE proponents, retire early means have the financial resources to spend your time doing work that is meaningful or contributing to society in the way you design. If you want to jump on the FIRE bandwagon, become financially independent sooner rather than later and have the freedom to craft your own life, explore the following strategies.

1. FIRE starts with self-reflection.

Before embarking on your FIRE journey, "define what financial independence means to you," says Rich Ramassini, director of sales and strategy at PNC Investments in Pittsburgh. Decide if financial independence means that you don't have to work at all. Understand your goals, values and what motivates you toward financial independence and early retirement. Retiring early because you hate your job isn't a sustainable goal, Ramassini says. You need to grasp what you'll do with your time once you hit your financial target. In fact, many FIRE devotees have a calling -- something that they want to do -- after hitting financial independence.

2. FIRE requires a strategy.

First, calculate how much money you will need to reach your personal financial independence goal. That amount can vary widely depending what you want to do with your time, where you'll live, other sources of income and how long you expect to live after retirement. Ramassini explains that some FIRE aficionados estimate that "once your net worth is 25 times your annual expenses, you've achieved financial independence." You can do the planning on your own or consider getting help.

3. With debt, there's no FIRE.

Carrying debt circumvents all air academy federal credit union monument co wealth-building strategies. Pay 10 percent interest and even if you earn a 7 percent return on your investments you're still out 3 percent. There are countless ways to pay off debt, along with a variety of companies to help you do so. "If you have student loans, you may be able to take control of them by refinancing them into a better deal," says Robb Granado, CEO of CommonBond in New York. By cutting your interest rate, consolidating the loans and committing to an aggressive repayment plan you can get your debt paid off faster. And, if your employer doesn't offer a student loan repayment benefit, why not recommend one?

4. To attain FIRE, extreme saving is a must.

Extreme saving and cutting costs go hand-in-hand to achieve FIRE, says Bob Dockendorff, vice president of Claro Advisors in Boston. The FIRE community strives to save 40 to 60 percent of their income. For instance, a 25-year-old couple earning $150,000 before taxes might save $50,000 and live on $50,000. Dockendorff explains that if they invest in low-cost exchange-traded funds and earn 7 percent annually, by age 40 they'd have approximately $1.25 million. At that point, with 4 percent withdrawals, they can sustain their lifestyle, Dockendorff says. And they've got the choice to work meaningful and fulfilling jobs, if they choose.

5. Living cheaply is a cornerstone of FIRE.

With saving apps, shared housing platforms, frugality websites and more, there's no excuse for living extravagantly. "Sacrifice is at the heart of FIRE," says Matt Ahrens, financial advisor with Integrity Advisory in Overland Park, Kansas. Cheap living comes in many forms and is inspired by your personal values. Ahrens recommends replacing the annual vacation with a biennial getaway. Buy a car every 10 years -- or 15 -- instead of every seven. "Unless you win the lottery, you're going to need to sacrifice and live below your means," Ahrens says.

6. FIRE proponents slash housing costs.

Housing is typically your greatest expense. In April 2018, the average U.S. home costs $394,600 according to the U.S. census website. Cut your housing costs and the FIRE dream inches closer. The tiny living movement is awash with folks practicing radical downsizing and living minimally in structures the size of a shipping cargo container. You can build and furnish your own tiny home for well under $50,000.

7. FIRE winners invest aggressively.

The stock market has returned over 9 percent annualized for almost a century. That return is tough to beat. If you're looking to retire early, that means you must plan for an extremely long time horizon and choose your asset allocation carefully. "If you are in your 20s, 30s or 40s and plan to retire early, you're likely to live for another 30 to 50 years or more. Over this period, stocks will provide the best long-term growth," says Lawrence Solomon, director of financial planning and investments for OptiFour Integrated Wealth Management in McLean, Virginia.

8. Have a side hustle to provide more FIRE income.

Multiple income streams will cushion stock market drops or surprise expenses. With unexpected financial blips, add a side hustle to dividend, capital gains and potential real estate income.The BNP Paribas Global Entrepreneurs 2016 report states that millennials are starting their own businesses at an average age of 27, younger than previous generations. So, start early and you don't need a giant business such as Facebook (ticker: FB) to become wealthy over time.

9. Automation is your friend.

Finally, if you're serious about FIRE, set yourself up for success. Automate your saving and investing, recommends Levi Sanchez, co-founder of Millennial Wealth in Seattle Washington. Diversify your investments and enjoy the frugal living challenge.



More From US News & World Report

Источник: https://finance.yahoo.com/news/9-tips-conquer-fire-financial-161250358.html

FIRE and home buying: Can you retire early with a mortgage?

FIRE and homebuying can go hand in hand

If you follow the FIRE method (financial independence, retire early) and plan to retire earlier than your peers, you might be wondering: Can I buy a house with a mortgage?

A mortgage is a huge debt – the biggest most people take on in their lives.

FIRE advocates paying off debt as quickly as possible and saving most of your income. So it might seem impossible to follow these mandates and buy a home.

But in fact, the experts say it’s possible if you follow a few key rules. Here’s what to do.

Verify your mortgage eligibility (Nov 29th, 2021)


In this article (Skip to.)


How the FIRE method works

The basic idea behind FIRE is simple: Save between 50% and 75% of your income, starting as early as possible in your career.

That way you can retire at a relatively young age – possibly even in your 30s or early 40s.

Of course, it’s not an easy goal.

Retiring early involves cutting your expenses and living frugally, while also raising your income as much as possible. Serious FIRE followers will even work multiple jobs if necessary.

The FIRE method also calls for paying off existing debt as soon as possible.

This includes revolving debt from high–interest credit cards, student loans, auto loans, personal loans, and other debt.

Buying a home can be part of your ‘retire early’ plan

Once your accumulated savings equate to 25 to 30 times your annual living expenses (commonly $1 million or more), you can work less or stop working altogether.

But you don’t put these savings into just any account.

You need to put this money to work for you by investing in the stock market and real estate – vehicles that will likely yield a higher rate of return over many years.

Real estate can be an important part of your investment portfolio, especially if you plan to earn passive income from renting out properties you own.

But buying a home or other property typically creates a lot of debt. So how do you square that purchase with the FIRE methodology?

How to achieve FIRE with a mortgage

Financing a home with a mortgage loan will create debt.

But it’s possible to buy property and follow FIRE if you choose the right home in the right location with the right mortgage.

Choose a shorter loan term

“You need to live in a low–cost location. And you need to try to pay off your home in 10 to 15 years,” says Caleb Liu, owner of HouseSimplySold.

“That means making accelerated payments toward the principal of your 30–year mortgage. Or it means taking out a 15–year mortgage or refinancing to financial independance retire early your savings instead of paying with cash

Brian Davis, director of education for SparkRental, suggests another strategy.

“Say you’ve saved $200,000 in cash,” says Davis.

“Instead of using all that money to buy a home, take out a 30–year mortgage loan at today’s 3.5% interest rate. This will cost you [about] $900 in monthly principal and interest payments.

“Then, take the $200,000 you’ve saved and invest it, ideally for a 10% return based on current market performance. You’ll earn [about] $1,700 a month – an $800 surplus after you’ve paid your mortgage.”

Either scenario beats renting, which costs more in many markets than it does to buy and own a home.

And remember that renting won’t earn any equity or tax breaks like owning a home can.

Verify your home buying eligibility (Nov 29th, 2021)

Get out of debt before buying a home

If you’re serious about “financial independence, retire early,” it might mean waiting a little longer to buy a home.

Before you buy a home or attempt to prepay your mortgage, focus on getting rid of your other outstanding debts.

“The FIRE method involves paying off your debts, starting with the highest interest rate obligations first,” says Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College.

Scott Bates, finance expert at MoneyandBills.com, agrees.

“If you are debt–free before applying for a mortgage, it allows you to save up a really big down payment. This will most likely result in a faster loan approval.”

“Plus,” he says, “you’ll have more equity in the property from the start and less to pay back.”

Lower debt means a lower mortgage rate

Carrying less debt when applying for a mortgage could make your home loan less expensive, too.

“Your credit score can be lowered by having large amounts of debt. A lower credit score will make you a higher credit risk to the lender,” Bates explains.

“They’ll give you a slightly higher interest rate in this case, which will cost you more in interest payments. And to lower these costs, they might charge you points, which will make your closing costs more expensive.”

“Every 40–point drop in your FICO score results in a 0.25% to 0.30% increase in your mortgage rate,” says Liu.

Verify your new rate (Nov 29th, 2021)

Tangible steps you can take toward FIRE and homebuying

Want to own a home now and reach your FIRE goals down the line? It’s doable, but you’ll have to make sacrifices.

“Many folks who make less than $50,000 a year will find it hard to save 50% to 75% of their take–home pay,” cautions Baker.

Bates says the FIRE method works best for disciplined singles and couples.

Raising a family, getting a divorce, suffering from costly health problems, or enduring a recession or long–term bear market could make it extremely hard to achieve FIRE.

Liu suggests the following tips:

  • Put every spare dollar you can save into a worthy investment vehicle. Look into stocks, bonds, mutual funds, and exchange–traded funds with a good track record
  • Explore real estate investments like rental properties, too. Aim to achieve at least 8% annual returns, which is better than paying financial independance retire early your 3.5%–4% mortgage early
  • Max out on any IRA, 401(k), or other retirement fund you’re allowed to contribute to, as well as any matching retirement fund contributions your employer offers
  • Consider cheaper real estate. Buy a smaller home in a more affordable location
  • Amp up your earnings. Aim for a promotion or raise, or look for a higher–paying job elsewhere. Take on a side gig or two, if you can

And as a general rule of thumb, try to decrease your expenses as much as possible in daily decisions like where you eat and what you drive.

Low mortgage rates let you pay off your home sooner

One important thing to keep in mind is that mortgage rates are exceptionally low right now.

That makes it much easier to buy a home and get out of debt early.

When rates are low, it’s possible to opt for a shorter, 15– or 20–year mortgage and still have manageable payments.

Or, you can opt for a low–rate 30–year mortgage with smaller payments, and just pay a little extra whenever you’re able.

This method is a more flexible than opting for a shorter–term mortgage and gives you some wiggle room if times are ever tough.

To get an exact estimate of your mortgage rate and payment, chat with a mortgage lender about your options.

This is the best way to get a clear picture of your budget and decide whether buying a home is the right move for you.

Show me today's rates (Nov 29th, 2021)

Источник: https://themortgagereports.com/62724/fire-and-home-buying-retire-early-with-a-mortgage

You might be able to retire earlier than you think. Here's how

Financial Independence Retire Early -- or FIRE -- is a method of living below your means to obtain financial independence and security as early as possible.
"The mentality behind the movement is where one strives to live life on their own terms and to get off the proverbial hamster wheel where you are dependent on your employer and have the freedom and security to do so," said Danielle R. Harrison, founder and president at Harrison Financial Planning.
That could mean having the financial freedom to change careers, work less or travel the world.
So what exactly does the FIRE movement entail? Here's everything you need to know.
The concept of FIRE is based on the notion that retirement is determined by a financial number and not by a person's age. It focuses on keeping expenses low and savings high. That means usually saving anywhere between 50% to 75% of your annual income to retire well before the age of 65 and usually without any debt.
"FIRE involves a shift in perspective regarding money and work, prioritizing what is most important to your work-life balance, and making decisions not dictated by the need to earn money but the ultimate goal of financial freedom," said AnnaMarie Mock, a certified financial planner and wealth adviser for Highland Financial Advisors.
People looking to pursue FIRE typically start by picking what's called a FIRE number, which is the amount of money you'd need to have saved to generate enough income to cover your expenses without having to work.
To determine your FIRE number, start off by figuring out your yearly expenses, excluding savings and taxes.
From there, calculate how much savings you'll need to generate that much income without having a paycheck.
One rule of thumb, known as the 4% rule, says that retirees can safely withdraw about 4% of their savings ayear without running out of money. That means saving 25 times your current annual expenses could last indefinitely with regular 4% yearly withdrawals.
For example, if your annual expenses are $50,000 per year, you would need at least$1,250,000 ($50,000 x 25) saved when you retire.
You can also take a more conservative approach by saving 28 to 33 times your current expenses, and take only 3% to 3.5% withdrawals.
From there, try an online calculator to determine how much to save and when you can reach that early nest egg number.
Starting as early as possible comes with many financial independance retire early. After all, getting a head start on your savings and investments gives your money more time to compound. But even though retiring early requires various sacrifices when it comes to saving and spending, the perks can be rewarding.
"The biggest perk of FIRE is independence," said Kevin Chancellor, a certified Social Security claiming strategist and financial adviser. "If your budget is still sustainable then you have the freedom to travel, be involved in your kid's school activities, start a side business or hobby, and spend more time doing what you want to do rather than what you need to do."

Reaching the magic number

Many people think they don't earn enough to be able to retire early. But there are several methods of reaching FIRE that could help them retire faster than they think.
When making the decision to retire early, you should expect to make some significant lifestyle changes. Those changes could be as big as increasing your streams of income or as small as cutting your own hair. It all comes down to either reducing how much you spend or boosting how much you save -- or both.
"Those looking to retire early need to widen the gap between what they earn and what they spend," said Harrison.
One way to do that is to drastically slash expenses and live a more frugal and lean lifestyle, which is often the quickest way to FIRE. Known as "Lean FIRE," this typically means having a lower target number for your nest egg and living more modestly in retirement.
Those who aren't interested in pinching pennies and have higher-than-average expenses can still retire by increasing their income.
Some ways to achieve "Fat FIRE," as it's known, could involve negotiating a higher salary, finding a higher paying job, accumulating sought-after skills, working a side-hustle or owning rental properties. Often, those pursuing Fat FIRE will either choose to work in higher paying professions or take longer to reach their larger savings goal.
Some people who want to retire sooner can pursue another method often called "Barista FIRE." In this scenario, you can quit your full-time day job once you've stashed away enough retirement savings to grow into a nice nest egg in a few more years without having to add funds. But rather than ceasing work altogether, you work a part-time job, pursue a less lucrative dream career or take on freelance projects in order to cover basic living expenses, all the while allowing your long-term retirement savings to grow until a more traditional retirement age.
Another thing to consider is how you'll spend your time without filling your days with a paid job.
For example, will you pursue hobbies, volunteer or travel more? Without a plan in place, you might find that FIRE isn't all you'd hoped it would be.
"For anyone retiring, it is important to know what you are retiring to. This is even more important for those looking to retire early," said Harrison. "Figure out what is going to give your life meaning and purpose, so your retirement years can bring you joy."
Источник: https://edition.cnn.com/2021/08/09/business/money/early-retirement-fire-feseries/index.html

FIRE Movement: Can I Achieve Financial Independence & Retire Early?

Who says you have to work until you’re 65?

By merely questioning that one assumption, you crack open the door to new possibilities. The question raises others, such as:

  • Why did 65 become the default retirement age? Why not 75 – or 50?
  • If you had enough money to retire tomorrow, what would you want to do with the rest of your life?
  • What trade-offs would you accept to make your day job optional?

The FIRE movement attempts to address these questions by encouraging followers to create their own retirement timelines. Here’s what you need to know about the movement, from its pros and cons to creating a formula for reaching FIRE yourself.

What Is FIRE?

The acronym “FIRE” stands for “financial independence and retiring early.” Financial independence, sometimes referred to as financial freedom, is not the same thing as being rich. It specifically refers to the ability to cover your monthly living expenses with passive investment income alone, independent of your job – in other words, not needing a job to pay your bills.

You can be financially independent with a middle-class income and lifestyle or even a modest, frugal lifestyle. If your investments earn you $20,000 per year, and you live on no more than $20,000 per year, you would be financially independent, even if no one would accuse you of being rich.

An important distinction comes to light when you realize you get to choose any age at which to retire: You can spend most of your income on the trappings and appearance of wealth, or you can funnel your income into investments that generate actual wealth.

Too few people – even among personal finance enthusiasts – understand the inverse relationship between feeling wealthy and becoming wealthy. But once you understand that FIRE is a choice, it forces you to reevaluate your priorities.


Benefits of FIRE

Like any popular movement, FIRE has plenty of benefits and its share of critics. The most obvious benefit of pursuing FIRE is not having to work anymore. But many of the benefits are more subtle and stem from pushing adherents to think differently about money.

1. It Challenges the 40+ Year Career Assumption

Most people never question the notion that they’ll work into their 60s. They work full-time, hopefully doing something they don’t hate, and spend nights and weekends with their families and friends. They buy the best houses they can afford, the best cars they can afford, and the best entertainment they can afford.

There’s no introspection and no questioning; just “work, weekend, repeat” ad infinitum – at least until you’re old enough for Social Security and Medicare, and then you can start thinking about throwing in the towel.

Questioning this assumption forces you to think differently about your retirement. Working for four or five decades and spending 90% to 95% of your income is only one option. The FIRE movement posits another: working for one or two decades or less, spending 30% to 50% of your income and saving the rest, and then doing whatever you like.

FIRE argues that working is a choice. It may not be a choice for you today, but whether you need to work 10 years from now is optional if you take the right actions. And that realization puts the responsibility back on you to consciously choose your career and retirement schedule, rather than thoughtlessly following the crowd.

Accepting that responsibility forces you to be more intentional in your priorities. Is it more important to you to spend more money today to feel like you’re rich? Or is it more important to accumulate the assets and freedom to do as you wish tomorrow?

2. It Removes the Constraints of Time & Money

Most people live their lives shackled by two constraints: time and money. They work full-time, so their schedule and free time are dictated by their work, and their money is dictated by their earnings from that work.

But financial independence and retiring early remove those constraints. When work becomes optional, you regain complete control over your schedule and time. You can work part-time, set your own hours, or not work at all. You can earn more money by working more hours or switching to higher-paying work if you like. It’s up to you.

3. It Allows You to Pursue Dream Work

When money no longer dictates your career decisions, more possibilities open up before you. You achieve real freedom: the freedom to stay at home with your kids, pursue your dream job, or volunteer full-time, for example.

I’ve wanted to write novels ever since I was a kid. But I didn’t do it because I didn’t want to be a starving artist. As I make progress toward financial independence, that fear has started receding into the background. Even if I publish a novel that bombs and my mother is the only buyer, I still wouldn’t starve.

What would you do if you had enough money to pay your bills for the rest of your life? Unless you already have your dream job, you’d probably do something different. And that “something different” is what becomes possible when you’re financially independent.

One final thought on the subject of dream work: Many 20-somethings don’t know what their dream work is. For that matter, the same goes for many 30-somethings. So while you figure out exactly what your true calling financial independance retire early in this life, pursuing FIRE will help you pay for it when the time comes.

4. It Forces You to Define How Much Is “Enough”

In my 20s and early 30s, no matter how much money I earned, I always wanted more. I’d get a raise, go out and celebrate with friends, and be ecstatic for a few days. Then that higher income became my new normal, and it wasn’t exciting financial independance retire early. After the brief euphoria of moving into a bigger home or buying a better car, I’d go back to being as happy – or unhappy – as I was before.

This constantly shifting baseline is known in psychology as “hedonic adaptation” or the “hedonic treadmill.” It’s why retail therapy only provides a few hours of happiness before leaving you feeling just as empty as before you blew several hundred dollars on clothes, shoes, or gadgets.

Lifestyle inflation doesn’t mean achieving more happiness; it just means spending more money. But pursuing FIRE forces you to define exactly how much money is “enough” as your target for investment income.

And because it takes a high savings rate to reach FIRE (more on that shortly), your idea of “enough” inherently remains grounded in what you need to be happy, not the maximum you can get away with spending at any given moment.


Criticisms of FIRE

For all its proponents, the FIRE movement has its detractors. Some of the criticisms below are legitimate risks you must mitigate before you can retire. Others are merely a reflexive reaction against the new, the disruptive, and the different.

1. You May Run Out of Money

Whether you retire at 30 or 80, you risk running out of money if you didn’t save enough while you were working.

Some investments, such as rental properties and dividend-paying stocks, generate ongoing income with no need to sell off assets. Yet because most of the returns from stocks come from price growth, retirees typically sell off a certain percentage of their stock portfolio every year in retirement, causing it to dwindle over time.

What percentage can you sell off without worrying about running out of money? The unsatisfying answer is “It depends,” but the traditional answer is that at a 4% withdrawal rate, your portfolio will last at least 30 years.

Lower withdrawal rates leave your nest egg intact longer, which means that if you want to retire early, you need more money saved. It’s hardly rocket science, but what is surprising is that you don’t have to lower the withdrawal rate by much for your nest egg to last indefinitely.

According to historical stock market performance, a 3.5% withdrawal rate will allow your nest egg to grow forever; see this explanation of how safe withdrawal rates work for details.

My Take

Running out of money is a risk of retirement in general and not unique to early retirement. No one should retire without fully understanding how much money they need to have saved and invested, regardless of their age.

2. You May Retire With Too Little Income

Just because you can live on $5,000 per month today doesn’t mean that you can live on it next year or 30 years from now. This is due to two factors: the risk of inflation and the risk of unforeseen future expenses (more on the latter shortly).

In the case of inflation, you should be taking it into account with your nest egg planning. For example, when financial planners calculate safe withdrawal rates, they adjust for inflation each year, growing the annual withdrawal by 2% or so.

I particularly like rental properties for ongoing income since rents rise alongside inflation. And since fixed-rate mortgage payments remain the same, your profit margin on rentals grows faster than the overall pace of rent or inflation growth.

My Take

Again, future income growth and accounting for inflation are fundamental to retirement planning in general. Investors should learn how to protect against inflation, regardless of when they plan to retire.

But early retirees have a unique advantage over their older counterparts: They can go back to work if need be. A person who retires at 40 can change their mind two years later and start earning an income again. A person who retires at 70 has a harder time going back to work.

3. You May Not Budget Enough for Future Medical Expenses

Most 40-year-olds have relatively low medical expenses. The same can’t be said for most 80-year-olds.

Adults must expect higher medical costs as they age and their health deteriorates. It’s part of retirement planning, just like making sure your nest egg doesn’t run dry, regardless of your retirement age.

Keep in mind that you qualify for Medicare at age 65, so by the time you reach the traditional retirement age, you can still ease your health care costs with Medicare. That said, if you didn’t work enough years to qualify for Social Security, you may be required to pay for Medicare.

My Take

Between the day you retire and your 65th birthday, you’re going to need to cover your own health care costs. Even after they qualify for Medicare, many people opt to buy extended coverage, commonly referred to as Medicare Advantage. Budget accordingly and plan on higher medical expenses as you age.

One approach is to review health care options for the self-employed. You can also use an HSA through Lively to combine a high-deductible insurance policy with your own flexible health savings investments.

Some people take relaxed, fun part-time jobs that offer health insurance. And many people who reach financial independence never retire fully. They simply switch to a dream job with a lower salary – a dream job that ideally includes health coverage.

4. You Lose Decades of Compounding & Wealth Building

When you bank routing number ascend federal credit union, you stop earning and start relying on your investments to cover your bills. That means you stop investing fresh money into them and start withdrawing money instead, which means no more compounding returns.

Compounding is incredibly powerful, but it takes time to work its magic. Consider two people who both start working at age 22 and invest $10,000 per year every year of their careers:

  • One of them works a traditional 45-year career and retires at age 67. At a 10% average annual return, they retire with an impressive $7,907,953.
  • The other retires at 42. With only 20 years of contributions and compounding, their nest egg is less than a american school holidays 2020 florida as large at $630,025.

My Take

First, not everyone wants to be rich. Some people would rather retire young with a modest lifestyle than work 25 years longer to have a wealthy lifestyle.

Second, the math in the two examples above assumes that each worker is investing the same amount every year. But that’s not how FIRE works; people pursuing FIRE intentionally budget for a high savings rate to maximize their investments. They effectively swap in a high savings rate for compounding.

A better comparison would be that the FIRE seeker invests $30,000 or $40,000 per year for 20 years, in contrast with the traditional worker’s $10,000. After 20 years at 10% returns compounded, the FIRE seeker would have $1,890,075 if they invested $30,000 per year and $2,520,100 if they invested $40,000 per year. That’s still less than the 45-year-career worker, but it’s nothing to scoff at.

Finally, keep in mind that most people who pursue FIRE don’t stop working and earning entirely; they merely change careers. In fact, they may well decide to work for more years than their traditional counterparts since they’re pursuing their dream work.

5. You Live for the Future, Not the Present

If you scrimp and save and sacrifice today so that you can have a brighter tomorrow, aren’t you living in the future and not the present? For that matter, what if you get hit by a bus and never see that brighter future?

We all must walk the delicate balance between planning for the future and living in the moment. But when you invest so much of your money and energy in building passive income for tomorrow, it can be easy to lose sight of the joys of today.

My Take

Frugality and a high savings rate don’t necessarily mean sacrifice, nor do they mean you don’t live in the present. Living in the present requires mindfulness, not money.

The simple fact is that if frugality makes you miserable, then FIRE is probably not for you. The entire point of FIRE is freedom, intentionality, and prioritization. If your priorities involve spending most of your income, there’s nothing wrong with that, but you probably aren’t a good fit for FIRE.

Alternatively, if you don’t mind front-loading your frugality and living a leaner life while you’re young, you can enjoy the fruits of that frugality later in the form of financial independence. Living lean doesn’t have to mean ramen noodles every night, but it does mean spending less than you could afford to so you can save and invest more money.

6. Financial independance retire early Is Only for [Insert Identifier Here]

It’s easy to dismiss FIRE as something that only other people can attain because then you don’t have to re-evaluate your own spending and financial goals. The dismissal goes something like this:

  • “Only people with six-digit salaries can afford to reach FIRE.”
  • “Only single people can reach FIRE.”
  • “Only married people can reach FIRE.”
  • “Only people without kids can reach FIRE.”
  • “Only white male millennial tech workers living in Silicon Valley who wear square ties can reach FIRE.”

And so on. They all boil down to a single justification pointing to some external reason why it’s not realistic for you to reach FIRE, taking all of the responsibility off of you.

My Take

Of all the criticisms of the FIRE movement, this one contains the least truth.

Yes, the more you earn, the faster you can theoretically reach financial independence. But spending habits are hard to break, and high earners grow accustomed to high spending. In some ways, it’s easier to earn more and hold your spending steady than it is to cut your spending in half.

Whether you’re married, single, have kids or don’t have kids, each status has its advantages and disadvantages for reaching FIRE. Having two incomes can help, but only if your spouse is equally committed to financial independence. And many families live on a single income.

The same goes for race, gender, work type, and any other identifier you want to swap in. When you stop pointing to external reasons for why the cooperative bank of cape cod routing number can’t do something and accept that your own decisions determine your outcome, it’s both freeing and terrifying.

You’re behind the wheel, and you get to choose where you want to go and how fast you get there.


The Formula to Reach FIRE

If anyone can reach financial independence and retire early, then how can you do it?

There are many paths to FIRE and many strategies for building passive income, but they all share common denominators. Here are the key steps to take.

1. Set a Target for Spending & Passive Income

To get anywhere, you first need to know where you want to go. Set a target for passive income, starting with the minimum amount you can spend each month and still be happy. After reaching financial independence, you can always choose to keep working, earning, and building more passive income.

By way of example, let’s say you want $4,000 per month in passive income. Now that you have a target, you can start figuring out how to reach it.

2. Set a High Savings Rate

The gap between what you earn and what you spend is one of the most critical numbers for building wealth, not just for FIRE. Look for ways to spend less and save more.

In particular, three costs make up roughly 70% of the average American’s budget, according to walmart poplar bluff mo 63901 Bureau of Labor Statistics: housing, transportation, and food. These three expenses offer the greatest room for savings.

For example, you could take a job that provides free housing to reduce your housing costs. You can try one of these 10 ways to minimize your transportation costs. You can bring your lunch to work and save hundreds of dollars per month. There’s always a cheaper – or even free – alternative to traditional spending. Look no further than these options for traveling the world for free.

To reach FIRE in five or 10 years, aim for a savings rate of 50% to 70% of your income. It’s not easy, but if it were easy, everyone would work for five years and then retire.

3. Maximize Your Active Income

The more you earn, the more you can save. Start working on getting that promotion or raise, find a better-paying job, or even change careers to earn more.

And your income potential doesn’t end with your full-time job. Look into side gigs to generate extra money. You can even turn your hobby into a money-making business.

The trick is to avoid lifestyle inflation and not spend more just because you start earning more. All that additional income should go straight into income-producing investments.

Pro tip: If you’re looking for a way to make some extra money on the side, consider Instacart. With Instacart you’ll earn extra income going grocery shopping for others. Since you’ll be able to set your own hours, you can work as much or as little as your schedule allows.

4. Invest for Passive Income

From dividends to rental properties, private notes to art first citizens nc login, you can even invest in art through Masterworks), crowdfunding websites like Groundfloor to bonds, you have plenty of options for generating passive income.

Personally, I like rental properties for high-yield income and stocks for diversification and long-term growth. One enormous advantage of rental properties is that you can leverage other people’s money to build your portfolio of income-producing assets.

For example, say you take $25,000 and use it as the down payment to buy a fixer-upper for a rental property. You cover closing costs with a seller concession and finance the renovation costs with a hard money loan. Upon completion, you refinance the property with a cheaper long-term mortgage and how long is lowes open today your original $25,000 back out.

You now have a property generating monthly income with no net cash investment from you. You can repeat this process indefinitely, creating a new stream of passive income with each property. It even has a fun acronym in the world of real estate investing: BRRRR, or “Buy, Renovate, Rent, Refinance, Repeat.”

Pro tip: If you’re interested in real estate but don’t want to own physical property, look into DiversyFund. It allows you to build wealth through commercial real estate, and you can get started with just $500. Sign up for DiversyFund.

5. Know Your FIRE Ratio

As they say in business, that which gets measured gets done.

In addition to your savings rate, one crucial number to track is your FIRE ratio, otherwise known as a FI ratio. It’s the percentage of your monthly expenses that you can currently cover with your passive income.

For example, if your monthly expenses total $4,000, and you currently have $400 coming in from investments every month, you have a FIRE ratio of 10%.

When your FIRE ratio reaches 100%, pop the champagne cork because you’re financially independent. You can retire and never work another day if you like. Or you can keep working, either in your current career or a fun, low-stress second career.

I also like to track my net worth through the budgeting app YNAB, though I acknowledge that it’s largely a vanity metric. For financial independence, your net worth is only as relevant as its financial independance retire early to generate ongoing income for you.

Finally, keep an eye on your asset allocation as well. At the beginning of your journey to FIRE, your investing strategy should focus on growth regardless of short-term volatility.

After all, if the stock market drops by 20% while you’re working, it’s no skin off your back – quite the opposite since you’re buying rather than selling at this point in your career. But as you get closer to retirement, income stability and reliability become more important. Without your full-time job to pay your bills, you become vulnerable to sequence of returns risk.

Look for ways to reduce risk in your stock investment portfolio as you get closer to retiring, regardless of your age.


Final Word

When you retire young, don’t expect help from Social Security or Medicare. You won’t qualify for many years, if at all.

Of course, the purchasing power of Social Security benefits has been declining for decades, losing 30% between 2000 and 2020, according to The Senior Citizens League. And the Social Security Administration admitted in 2018 that its spending deficit puts it on track for insolvency by 2034.

As for health insurance, if you retire young, you can exercise the same health insurance options as the self-employed.

A 50%, 60%, or 70% savings rate is not easy. It’s not fun to drive a 10-year-old beater while your friends drive brand-new BMWs. But it’s a lifestyle choice based on priorities: Would you rather build enough wealth to retire young, or would you rather spend most of your paycheck now?

There’s no wrong answer. But those willing to spend less today get to play tomorrow while their colleagues continue grinding away at work.

Источник: https://www.moneycrashers.com/fire-movement-financial-independence-retire-early/

What to do in your 20s to retire before 40? Is it really possible?

how to retire before 40sKnow what to do in 20s to retire before 40s

Bored of 9-5 job? And want to retire early in your 40s, or even earlier? Well, you may not be the only one thinking on this line. Discussions around retirement before the 40s may be relatively new for India as the predominant mindset here is of retiring at 60 or 58. But in the US, almost a kind movement to retire early has been going on. Many individuals have tried to reach this goal of retiring at 40. Before setting such a goal, however, few questions you should ask yourself: Do I really want to retire before 40? Is it really possible? Recently at a retail investor-focused online event ‘Thrive’ organised by Groww, CA Rachana Ranade delved deep into this topic with some interesting insights. Here is a summary and key points from financial independance retire early session that may help you if you are also planning to retire before 40s.

“In the USA, this movement (of retiring before the 40s) started very predominantly where people were more interested to slog, to earn, to spend with very very conscious efforts and then try and save a lot of money and retire rich early,” Ranade said. She added that this movement was called FIRE – Financial Independence & Retire Early – movement. There were two elements of this movement: Financial Independence and Early Retirement.

Related News

Without financial independence, one cannot retire early. But what does this financial independence mean? There are multiple interpretations of financial independence:

1. Financial independence is basically based on the concept that instead of you working for money, money should work for you. It is said that when your passive income is more than your active income, you may say you have achieved financial independence.

2. You don’t have to depend on a 9-5 job. There should be other sources earning revenue for you.

The FIRE movement was based on three parameters: Extreme savings, Frugality and Generating a passive income.

You might have heard of the 50-30-20 rule, which basically means 50% of your income should go for your needs, 30% for wants and 20% towards savings. If you go by this rule, Ranade said you may not be able to retire before 40. For that, the FIRE movement prescribed that 50-70% of total income should go towards savings. So what are the three steps you should take to retire before 40? Learnings from the FIRE movement can be summed up in three points:

First, Determine your saving percentage: You should be prepared to save up to 50-70% of your total income.

Second, calculate your target retirement corpus. Wondering how much you would require on retirement? Well, Ranade said that under FIRE, they gave a formula to calculate this: Multiply total annual expenses with 25 to find the retirement corpus you may require. For example, if your annual expenses is Rs 10 lakh, you would require Rs 10 Lakh x 25 = RS 2.5 crore as a retirement fund under FIRE.

Third, find out how long will it take you to reach the goal.

There are three approaches prescribed under FIRE:

Lean FIRE: Try to minimise your expenses and maximise savings.

Fat FIRE: Spend a little more. Under this, you will be able to retire early but not as early as you want.

Barista FIRE: In this, you save enough money which will allow you to retire early. At the age of 26-28 years, try to get that much money to go head with your own business/startup. If your startup clicks, you may be able to retire before 40.

All of the above concepts were made famous in the US. But in the Indian context also you can calculate what you require to retire early. While doing all these things, there are certain points you required to follow to retire early:

  • Redirect your cash gifts or pocket money. Better put them in a bank account or invest.
  • Career planning: Plan your career very early. Start planning at an early age. If you execute your plan well, chances of success and reaching the chase order checks phone number would be fairly higher.
  • Avoid or have minimum Debt. There are many people who think that credit card is a must. Well, the credit card is a good thing if you spend wisely. But if you are using your credit card without giving a second thought, it will be very bad for you. If possible try to avoid a debt if it is not really required.
  • Reduce your spending. For that follow a “magical formula: Instead of following the “Income-Expenditure = Savings” formula, follow “Income-Savings = Expenditure” formula. That is, set a saving target from whatever you are earning and spend the remaining amount. In that case, you will be able to attain the concept of FIRE at the right age.
  • Get yourself insured: You need to do this so that your dependents are taken care off in case of an emergency. If you are not insured, whatever you have saved for a long time may go for a toss if there is a medical emergency in the family.
  • Build an emergency fund: No matter how much you are investing or earning, an emergency fund is something that is a must.
  • Have a backup plan: If one plan doesn’t work, you should have another plan to reach your goal to face situations that may be beyond your control.

Ranade further suggested that you should never withdraw interest earned on a deposit. Let it remain invested to earn interest on interest.

How to diversify portfolio

Ranade shared different case scenarios for explaining how to diversify the portfolio:

If you are a young employee with no dependents:

50% equity scheme, 20% direct equities, 10% index ETF, 10% international fund and 10% liquid scheme. Your maximum investments should be in equity. There is a thumb rule: “100-your age” should be the proportion of your investment in equity.

If you are the only income earner in the family and 2 kids going to school:

40% in equity scheme/direct equity; 20% in index ETF, 15% in FDs, 15% in Debt scheme and 10% in liquid scheme.

Single income family with not yet settled grown-up children

30% equity scheme, 10% direct equities, 20% index ETF, 20% Bank FD, 20% debt scheme, 10% Liquid scheme

She said that the above are just examples as there is no one thumb rule. Had it been so, why would there have been portfolio managers? Ranade quipped.

You should check based on your own background and then you can decide on how to diversify your portfolio.

Big question: Why you want to retire early?

Ranade said that before setting an early retirement goal, you should ask yourself why you want to retire early? Is it really really required. You should ask yourself: Whether you love your job? Are you passionate about it or not? Life is uncertain. It is a wholesome concept. “People are just going mad behind earning money. Dont do that. I feel that if you are doing a financial independance retire early which you love, retiring at 50 or even retiring at 60 will not be a problem,” she concluded.

Thrive by Groww is an initiative to bring the smartest minds of India to talk about money. Aimed at retail investors, the virtual event was held on March 20, 2021.

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Источник: https://www.financialexpress.com/money/what-to-do-in-your-20s-to-retire-before-40-early-retirement-planning-in-india/2224794/
financial independance retire early

Financial independance retire early -

You might be able to retire earlier than you think. Here's how

Financial Independence Retire Early -- or FIRE -- is a method of living below your means to obtain financial independence and security as early as possible.
"The mentality behind the movement is where one strives to live life on their own terms and to get off the proverbial hamster wheel where you are dependent on your employer and have the freedom and security to do so," said Danielle R. Harrison, founder and president at Harrison Financial Planning.
That could mean having the financial freedom to change careers, work less or travel the world.
So what exactly does the FIRE movement entail? Here's everything you need to know.
The concept of FIRE is based on the notion that retirement is determined by a financial number and not by a person's age. It focuses on keeping expenses low and savings high. That means usually saving anywhere between 50% to 75% of your annual income to retire well before the age of 65 and usually without any debt.
"FIRE involves a shift in perspective regarding money and work, prioritizing what is most important to your work-life balance, and making decisions not dictated by the need to earn money but the ultimate goal of financial freedom," said AnnaMarie Mock, a certified financial planner and wealth adviser for Highland Financial Advisors.
People looking to pursue FIRE typically start by picking what's called a FIRE number, which is the amount of money you'd need to have saved to generate enough income to cover your expenses without having to work.
To determine your FIRE number, start off by figuring out your yearly expenses, excluding savings and taxes.
From there, calculate how much savings you'll need to generate that much income without having a paycheck.
One rule of thumb, known as the 4% rule, says that retirees can safely withdraw about 4% of their savings ayear without running out of money. That means saving 25 times your current annual expenses could last indefinitely with regular 4% yearly withdrawals.
For example, if your annual expenses are $50,000 per year, you would need at least$1,250,000 ($50,000 x 25) saved when you retire.
You can also take a more conservative approach by saving 28 to 33 times your current expenses, and take only 3% to 3.5% withdrawals.
From there, try an online calculator to determine how much to save and when you can reach that early nest egg number.
Starting as early as possible comes with many advantages. After all, getting a head start on your savings and investments gives your money more time to compound. But even though retiring early requires various sacrifices when it comes to saving and spending, the perks can be rewarding.
"The biggest perk of FIRE is independence," said Kevin Chancellor, a certified Social Security claiming strategist and financial adviser. "If your budget is still sustainable then you have the freedom to travel, be involved in your kid's school activities, start a side business or hobby, and spend more time doing what you want to do rather than what you need to do."

Reaching the magic number

Many people think they don't earn enough to be able to retire early. But there are several methods of reaching FIRE that could help them retire faster than they think.
When making the decision to retire early, you should expect to make some significant lifestyle changes. Those changes could be as big as increasing your streams of income or as small as cutting your own hair. It all comes down to either reducing how much you spend or boosting how much you save -- or both.
"Those looking to retire early need to widen the gap between what they earn and what they spend," said Harrison.
One way to do that is to drastically slash expenses and live a more frugal and lean lifestyle, which is often the quickest way to FIRE. Known as "Lean FIRE," this typically means having a lower target number for your nest egg and living more modestly in retirement.
Those who aren't interested in pinching pennies and have higher-than-average expenses can still retire by increasing their income.
Some ways to achieve "Fat FIRE," as it's known, could involve negotiating a higher salary, finding a higher paying job, accumulating sought-after skills, working a side-hustle or owning rental properties. Often, those pursuing Fat FIRE will either choose to work in higher paying professions or take longer to reach their larger savings goal.
Some people who want to retire sooner can pursue another method often called "Barista FIRE." In this scenario, you can quit your full-time day job once you've stashed away enough retirement savings to grow into a nice nest egg in a few more years without having to add funds. But rather than ceasing work altogether, you work a part-time job, pursue a less lucrative dream career or take on freelance projects in order to cover basic living expenses, all the while allowing your long-term retirement savings to grow until a more traditional retirement age.
Another thing to consider is how you'll spend your time without filling your days with a paid job.
For example, will you pursue hobbies, volunteer or travel more? Without a plan in place, you might find that FIRE isn't all you'd hoped it would be.
"For anyone retiring, it is important to know what you are retiring to. This is even more important for those looking to retire early," said Harrison. "Figure out what is going to give your life meaning and purpose, so your retirement years can bring you joy."
Источник: https://edition.cnn.com/2021/08/09/business/money/early-retirement-fire-feseries/index.html

How to Retire at 40: Financial Independence Retire Early (FIRE) Movement

When you are young, retirement might not seem like something to worry about. The retirement age in India varies between 60 and 65 years. So, you will work all your life, and then one day, your employer will say, “Thank you so much. Your services are no longer required.” And then you will live the rest of your life with the money you saved up. Sounds simple, until you realize that it does not leave much room for living your life. What about your aspirations—the books you wanted to read, the paintings you wanted to make, the vacations you wanted to go on?

This is from where the idea of early retirement arises.

A change in perspective

To retire early, you first need to change your perspective. You must believe that the meaning of retirement is not the end of your career but the beginning of your life. So, do not wait to retire when you are old; do it when you can afford it. If you want to retire at 40, the target should be to achieve financial freedom.

What is financial freedom?

It is a stage of life where you do not have any debts and have enough savings to lead a comfortable life. Financial freedom allows you to get a job that you love or not work at all. A popular concept to achieve that goal is Financial Independence Retire Early (FIRE).

What is FIRE?

The idea of FIRE is simple; you can retire early as long as you concentrate on extreme savings and building a substantial fund with investments. The goal is to pay off all your debts and start generating passive income before retirement. So, you might have to practice frugal living today to enjoy a comfortable life tomorrow.

Now, the big question is, “how much money should you have post-retirement?” This can be answered with the idea of a safe withdrawal rate, a formula introduced by William Bengen in 1994. It is known as the 4% rule. According to him, your retirement fund should be 25 times your annual expenses, which allows you to withdraw 4% from the fund every year. This gives an idea about how much money you would need when you retire.

Lessons from FIRE movement

The FIRE movement has a lot to teach about planning and saving for retirement. Check out the below points carefully before you start implementing the concept.

  • Start financial planning for retirement early. When your target is clear, it is easier to achieve it.
  • Control your expenses. The lower you spend; the higher will be your savings.
  • Find additional sources of income. Part-time jobs can help you save more.
  • Make saving and investing a habit. FIRE encourages you to use a large portion of your income for these purposes.

Why does FIRE not work for everyone?

Proper retirement planning is for all, but the same method cannot work for everyone equally. One of the drawbacks of the FIRE theory is that it assumes you have a large income. Without it, there is no way to build up considerable wealth before turning 40. Moreover, the 4% rule works only if you spend the same amount every year. It does not take inflation and financial emergencies into account. You also may even have to give up on some of your dreams, like traveling to foreign countries or buying expensive things. So, FIRE does not work for everyone.

How the calculations can be adjusted to the Indian context

William Bengen’s idea of a safe withdrawal rate was based on the Western culture, financial system, and lifestyle. So, it is obvious that the theory will not entirely work in a country like India, where the inflation rate is high and income tax slabs keep changing regularly.

If you want to make an early retirement plan in India based on FIRE, you need to adjust the formula slightly. A retirement fund worth 25 times your annual expenditures will not be enough. It needs to be at least 30 times your yearly expenses. But how much money will you need exactly? Let us calculate that with an example.

Assume your current age is 25 years and your monthly living cost is ₹50,000. If you want to retire by 40, you have 15 years left to accumulate the retirement fund. If the inflation rate is 6%, your monthly expenses will rise from ₹50,000 to ₹1.20 lakhs by the time you turn 40. This means you will need ₹14.40 lakhs a year to maintain your lifestyle.

By this calculation, you should have a little over ₹4.30 crores by the age of 40 to attain financial freedom. Saving alone will not help you reach that mark unless you start investing in profitable financial products today. You must put ₹12.61 lakhs a year in an instrument that offers an annual 9% compound interest to accumulate ₹4.30 crores in 15 years. And this will require you to set aside ₹1.05 lakhs per month, starting from today.

Steps to follow for early retirement

Before you start the financial planning for retirement, you must consider the factors given below:

  • Define retirement: Determine how retirement looks for you. You must decide whether you want to stop working entirely or do something that you like.
  • Calculate your expenses: To begin with, you must estimate your yearly expenses. Take note of every outflow carefully. Once you have a precise number on paper, planning your retirement will be an easy process.
  • Lead a simple life: Aggressive savings and investments are the only ways to build a large retirement corpus. So, you must significantly lower your monthly spending and try to lead an inexpensive life.
  • Make investments: You cannot save up enough for retirement without passive income sources. So, you must invest in financial products that can offer high and stable returns, like Public Provident Funds (PPFs) and mutual funds.
  • Pay off loans: Make sure that all your debts are paid off before turning 40. You do not want that financial responsibility after retirement.

Achieving financial freedom is possible if you start investing early. Although it is essential, it does not mean you should compromise your lifestyle in the process. You can create a considerable retirement fund with proper planning and diversified investments. But, if you feel like going on a trip or buying a new phone, do not deny yourself that joy. You can make a financial adjustment later; remember, you only live once (YOLO)!

In this article

Millions By Jupiter, Financial Planning

Источник: https://jupiter.money/resources/how-to-retire-at-40/

FIRE and home buying: Can you retire early with a mortgage?

FIRE and homebuying can go hand in hand

If you follow the FIRE method (financial independence, retire early) and plan to retire earlier than your peers, you might be wondering: Can I buy a house with a mortgage?

A mortgage is a huge debt – the biggest most people take on in their lives.

FIRE advocates paying off debt as quickly as possible and saving most of your income. So it might seem impossible to follow these mandates and buy a home.

But in fact, the experts say it’s possible if you follow a few key rules. Here’s what to do.

Verify your mortgage eligibility (Nov 29th, 2021)


In this article (Skip to...)


How the FIRE method works

The basic idea behind FIRE is simple: Save between 50% and 75% of your income, starting as early as possible in your career.

That way you can retire at a relatively young age – possibly even in your 30s or early 40s.

Of course, it’s not an easy goal.

Retiring early involves cutting your expenses and living frugally, while also raising your income as much as possible. Serious FIRE followers will even work multiple jobs if necessary.

The FIRE method also calls for paying off existing debt as soon as possible.

This includes revolving debt from high–interest credit cards, student loans, auto loans, personal loans, and other debt.

Buying a home can be part of your ‘retire early’ plan

Once your accumulated savings equate to 25 to 30 times your annual living expenses (commonly $1 million or more), you can work less or stop working altogether.

But you don’t put these savings into just any account.

You need to put this money to work for you by investing in the stock market and real estate – vehicles that will likely yield a higher rate of return over many years.

Real estate can be an important part of your investment portfolio, especially if you plan to earn passive income from renting out properties you own.

But buying a home or other property typically creates a lot of debt. So how do you square that purchase with the FIRE methodology?

How to achieve FIRE with a mortgage

Financing a home with a mortgage loan will create debt.

But it’s possible to buy property and follow FIRE if you choose the right home in the right location with the right mortgage.

Choose a shorter loan term

“You need to live in a low–cost location. And you need to try to pay off your home in 10 to 15 years,” says Caleb Liu, owner of HouseSimplySold.

“That means making accelerated payments toward the principal of your 30–year mortgage. Or it means taking out a 15–year mortgage or refinancing to one.”

Invest your savings instead of paying with cash

Brian Davis, director of education for SparkRental, suggests another strategy.

“Say you’ve saved $200,000 in cash,” says Davis.

“Instead of using all that money to buy a home, take out a 30–year mortgage loan at today’s 3.5% interest rate. This will cost you [about] $900 in monthly principal and interest payments.

“Then, take the $200,000 you’ve saved and invest it, ideally for a 10% return based on current market performance. You’ll earn [about] $1,700 a month – an $800 surplus after you’ve paid your mortgage.”

Either scenario beats renting, which costs more in many markets than it does to buy and own a home.

And remember that renting won’t earn any equity or tax breaks like owning a home can.

Verify your home buying eligibility (Nov 29th, 2021)

Get out of debt before buying a home

If you’re serious about “financial independence, retire early,” it might mean waiting a little longer to buy a home.

Before you buy a home or attempt to prepay your mortgage, focus on getting rid of your other outstanding debts.

“The FIRE method involves paying off your debts, starting with the highest interest rate obligations first,” says Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College.

Scott Bates, finance expert at MoneyandBills.com, agrees.

“If you are debt–free before applying for a mortgage, it allows you to save up a really big down payment. This will most likely result in a faster loan approval.”

“Plus,” he says, “you’ll have more equity in the property from the start and less to pay back.”

Lower debt means a lower mortgage rate

Carrying less debt when applying for a mortgage could make your home loan less expensive, too.

“Your credit score can be lowered by having large amounts of debt. A lower credit score will make you a higher credit risk to the lender,” Bates explains.

“They’ll give you a slightly higher interest rate in this case, which will cost you more in interest payments. And to lower these costs, they might charge you points, which will make your closing costs more expensive.”

“Every 40–point drop in your FICO score results in a 0.25% to 0.30% increase in your mortgage rate,” says Liu.

Verify your new rate (Nov 29th, 2021)

Tangible steps you can take toward FIRE and homebuying

Want to own a home now and reach your FIRE goals down the line? It’s doable, but you’ll have to make sacrifices.

“Many folks who make less than $50,000 a year will find it hard to save 50% to 75% of their take–home pay,” cautions Baker.

Bates says the FIRE method works best for disciplined singles and couples.

Raising a family, getting a divorce, suffering from costly health problems, or enduring a recession or long–term bear market could make it extremely hard to achieve FIRE.

Liu suggests the following tips:

  • Put every spare dollar you can save into a worthy investment vehicle. Look into stocks, bonds, mutual funds, and exchange–traded funds with a good track record
  • Explore real estate investments like rental properties, too. Aim to achieve at least 8% annual returns, which is better than paying off your 3.5%–4% mortgage early
  • Max out on any IRA, 401(k), or other retirement fund you’re allowed to contribute to, as well as any matching retirement fund contributions your employer offers
  • Consider cheaper real estate. Buy a smaller home in a more affordable location
  • Amp up your earnings. Aim for a promotion or raise, or look for a higher–paying job elsewhere. Take on a side gig or two, if you can

And as a general rule of thumb, try to decrease your expenses as much as possible in daily decisions like where you eat and what you drive.

Low mortgage rates let you pay off your home sooner

One important thing to keep in mind is that mortgage rates are exceptionally low right now.

That makes it much easier to buy a home and get out of debt early.

When rates are low, it’s possible to opt for a shorter, 15– or 20–year mortgage and still have manageable payments.

Or, you can opt for a low–rate 30–year mortgage with smaller payments, and just pay a little extra whenever you’re able.

This method is a more flexible than opting for a shorter–term mortgage and gives you some wiggle room if times are ever tough.

To get an exact estimate of your mortgage rate and payment, chat with a mortgage lender about your options.

This is the best way to get a clear picture of your budget and decide whether buying a home is the right move for you.

Show me today's rates (Nov 29th, 2021)

Источник: https://themortgagereports.com/62724/fire-and-home-buying-retire-early-with-a-mortgage

FIRE Movement: Can I Achieve Financial Independence & Retire Early?

Who says you have to work until you’re 65?

By merely questioning that one assumption, you crack open the door to new possibilities. The question raises others, such as:

  • Why did 65 become the default retirement age? Why not 75 – or 50?
  • If you had enough money to retire tomorrow, what would you want to do with the rest of your life?
  • What trade-offs would you accept to make your day job optional?

The FIRE movement attempts to address these questions by encouraging followers to create their own retirement timelines. Here’s what you need to know about the movement, from its pros and cons to creating a formula for reaching FIRE yourself.

What Is FIRE?

The acronym “FIRE” stands for “financial independence and retiring early.” Financial independence, sometimes referred to as financial freedom, is not the same thing as being rich. It specifically refers to the ability to cover your monthly living expenses with passive investment income alone, independent of your job – in other words, not needing a job to pay your bills.

You can be financially independent with a middle-class income and lifestyle or even a modest, frugal lifestyle. If your investments earn you $20,000 per year, and you live on no more than $20,000 per year, you would be financially independent, even if no one would accuse you of being rich.

An important distinction comes to light when you realize you get to choose any age at which to retire: You can spend most of your income on the trappings and appearance of wealth, or you can funnel your income into investments that generate actual wealth.

Too few people – even among personal finance enthusiasts – understand the inverse relationship between feeling wealthy and becoming wealthy. But once you understand that FIRE is a choice, it forces you to reevaluate your priorities.


Benefits of FIRE

Like any popular movement, FIRE has plenty of benefits and its share of critics. The most obvious benefit of pursuing FIRE is not having to work anymore. But many of the benefits are more subtle and stem from pushing adherents to think differently about money.

1. It Challenges the 40+ Year Career Assumption

Most people never question the notion that they’ll work into their 60s. They work full-time, hopefully doing something they don’t hate, and spend nights and weekends with their families and friends. They buy the best houses they can afford, the best cars they can afford, and the best entertainment they can afford.

There’s no introspection and no questioning; just “work, weekend, repeat” ad infinitum – at least until you’re old enough for Social Security and Medicare, and then you can start thinking about throwing in the towel.

Questioning this assumption forces you to think differently about your retirement. Working for four or five decades and spending 90% to 95% of your income is only one option. The FIRE movement posits another: working for one or two decades or less, spending 30% to 50% of your income and saving the rest, and then doing whatever you like.

FIRE argues that working is a choice. It may not be a choice for you today, but whether you need to work 10 years from now is optional if you take the right actions. And that realization puts the responsibility back on you to consciously choose your career and retirement schedule, rather than thoughtlessly following the crowd.

Accepting that responsibility forces you to be more intentional in your priorities. Is it more important to you to spend more money today to feel like you’re rich? Or is it more important to accumulate the assets and freedom to do as you wish tomorrow?

2. It Removes the Constraints of Time & Money

Most people live their lives shackled by two constraints: time and money. They work full-time, so their schedule and free time are dictated by their work, and their money is dictated by their earnings from that work.

But financial independence and retiring early remove those constraints. When work becomes optional, you regain complete control over your schedule and time. You can work part-time, set your own hours, or not work at all. You can earn more money by working more hours or switching to higher-paying work if you like. It’s up to you.

3. It Allows You to Pursue Dream Work

When money no longer dictates your career decisions, more possibilities open up before you. You achieve real freedom: the freedom to stay at home with your kids, pursue your dream job, or volunteer full-time, for example.

I’ve wanted to write novels ever since I was a kid. But I didn’t do it because I didn’t want to be a starving artist. As I make progress toward financial independence, that fear has started receding into the background. Even if I publish a novel that bombs and my mother is the only buyer, I still wouldn’t starve.

What would you do if you had enough money to pay your bills for the rest of your life? Unless you already have your dream job, you’d probably do something different. And that “something different” is what becomes possible when you’re financially independent.

One final thought on the subject of dream work: Many 20-somethings don’t know what their dream work is. For that matter, the same goes for many 30-somethings. So while you figure out exactly what your true calling is in this life, pursuing FIRE will help you pay for it when the time comes.

4. It Forces You to Define How Much Is “Enough”

In my 20s and early 30s, no matter how much money I earned, I always wanted more. I’d get a raise, go out and celebrate with friends, and be ecstatic for a few days. Then that higher income became my new normal, and it wasn’t exciting anymore. After the brief euphoria of moving into a bigger home or buying a better car, I’d go back to being as happy – or unhappy – as I was before.

This constantly shifting baseline is known in psychology as “hedonic adaptation” or the “hedonic treadmill.” It’s why retail therapy only provides a few hours of happiness before leaving you feeling just as empty as before you blew several hundred dollars on clothes, shoes, or gadgets.

Lifestyle inflation doesn’t mean achieving more happiness; it just means spending more money. But pursuing FIRE forces you to define exactly how much money is “enough” as your target for investment income.

And because it takes a high savings rate to reach FIRE (more on that shortly), your idea of “enough” inherently remains grounded in what you need to be happy, not the maximum you can get away with spending at any given moment.


Criticisms of FIRE

For all its proponents, the FIRE movement has its detractors. Some of the criticisms below are legitimate risks you must mitigate before you can retire. Others are merely a reflexive reaction against the new, the disruptive, and the different.

1. You May Run Out of Money

Whether you retire at 30 or 80, you risk running out of money if you didn’t save enough while you were working.

Some investments, such as rental properties and dividend-paying stocks, generate ongoing income with no need to sell off assets. Yet because most of the returns from stocks come from price growth, retirees typically sell off a certain percentage of their stock portfolio every year in retirement, causing it to dwindle over time.

What percentage can you sell off without worrying about running out of money? The unsatisfying answer is “It depends,” but the traditional answer is that at a 4% withdrawal rate, your portfolio will last at least 30 years.

Lower withdrawal rates leave your nest egg intact longer, which means that if you want to retire early, you need more money saved. It’s hardly rocket science, but what is surprising is that you don’t have to lower the withdrawal rate by much for your nest egg to last indefinitely.

According to historical stock market performance, a 3.5% withdrawal rate will allow your nest egg to grow forever; see this explanation of how safe withdrawal rates work for details.

My Take

Running out of money is a risk of retirement in general and not unique to early retirement. No one should retire without fully understanding how much money they need to have saved and invested, regardless of their age.

2. You May Retire With Too Little Income

Just because you can live on $5,000 per month today doesn’t mean that you can live on it next year or 30 years from now. This is due to two factors: the risk of inflation and the risk of unforeseen future expenses (more on the latter shortly).

In the case of inflation, you should be taking it into account with your nest egg planning. For example, when financial planners calculate safe withdrawal rates, they adjust for inflation each year, growing the annual withdrawal by 2% or so.

I particularly like rental properties for ongoing income since rents rise alongside inflation. And since fixed-rate mortgage payments remain the same, your profit margin on rentals grows faster than the overall pace of rent or inflation growth.

My Take

Again, future income growth and accounting for inflation are fundamental to retirement planning in general. Investors should learn how to protect against inflation, regardless of when they plan to retire.

But early retirees have a unique advantage over their older counterparts: They can go back to work if need be. A person who retires at 40 can change their mind two years later and start earning an income again. A person who retires at 70 has a harder time going back to work.

3. You May Not Budget Enough for Future Medical Expenses

Most 40-year-olds have relatively low medical expenses. The same can’t be said for most 80-year-olds.

Adults must expect higher medical costs as they age and their health deteriorates. It’s part of retirement planning, just like making sure your nest egg doesn’t run dry, regardless of your retirement age.

Keep in mind that you qualify for Medicare at age 65, so by the time you reach the traditional retirement age, you can still ease your health care costs with Medicare. That said, if you didn’t work enough years to qualify for Social Security, you may be required to pay for Medicare.

My Take

Between the day you retire and your 65th birthday, you’re going to need to cover your own health care costs. Even after they qualify for Medicare, many people opt to buy extended coverage, commonly referred to as Medicare Advantage. Budget accordingly and plan on higher medical expenses as you age.

One approach is to review health care options for the self-employed. You can also use an HSA through Lively to combine a high-deductible insurance policy with your own flexible health savings investments.

Some people take relaxed, fun part-time jobs that offer health insurance. And many people who reach financial independence never retire fully. They simply switch to a dream job with a lower salary – a dream job that ideally includes health coverage.

4. You Lose Decades of Compounding & Wealth Building

When you retire, you stop earning and start relying on your investments to cover your bills. That means you stop investing fresh money into them and start withdrawing money instead, which means no more compounding returns.

Compounding is incredibly powerful, but it takes time to work its magic. Consider two people who both start working at age 22 and invest $10,000 per year every year of their careers:

  • One of them works a traditional 45-year career and retires at age 67. At a 10% average annual return, they retire with an impressive $7,907,953.
  • The other retires at 42. With only 20 years of contributions and compounding, their nest egg is less than a tenth as large at $630,025.

My Take

First, not everyone wants to be rich. Some people would rather retire young with a modest lifestyle than work 25 years longer to have a wealthy lifestyle.

Second, the math in the two examples above assumes that each worker is investing the same amount every year. But that’s not how FIRE works; people pursuing FIRE intentionally budget for a high savings rate to maximize their investments. They effectively swap in a high savings rate for compounding.

A better comparison would be that the FIRE seeker invests $30,000 or $40,000 per year for 20 years, in contrast with the traditional worker’s $10,000. After 20 years at 10% returns compounded, the FIRE seeker would have $1,890,075 if they invested $30,000 per year and $2,520,100 if they invested $40,000 per year. That’s still less than the 45-year-career worker, but it’s nothing to scoff at.

Finally, keep in mind that most people who pursue FIRE don’t stop working and earning entirely; they merely change careers. In fact, they may well decide to work for more years than their traditional counterparts since they’re pursuing their dream work.

5. You Live for the Future, Not the Present

If you scrimp and save and sacrifice today so that you can have a brighter tomorrow, aren’t you living in the future and not the present? For that matter, what if you get hit by a bus and never see that brighter future?

We all must walk the delicate balance between planning for the future and living in the moment. But when you invest so much of your money and energy in building passive income for tomorrow, it can be easy to lose sight of the joys of today.

My Take

Frugality and a high savings rate don’t necessarily mean sacrifice, nor do they mean you don’t live in the present. Living in the present requires mindfulness, not money.

The simple fact is that if frugality makes you miserable, then FIRE is probably not for you. The entire point of FIRE is freedom, intentionality, and prioritization. If your priorities involve spending most of your income, there’s nothing wrong with that, but you probably aren’t a good fit for FIRE.

Alternatively, if you don’t mind front-loading your frugality and living a leaner life while you’re young, you can enjoy the fruits of that frugality later in the form of financial independence. Living lean doesn’t have to mean ramen noodles every night, but it does mean spending less than you could afford to so you can save and invest more money.

6. FIRE Is Only for [Insert Identifier Here]

It’s easy to dismiss FIRE as something that only other people can attain because then you don’t have to re-evaluate your own spending and financial goals. The dismissal goes something like this:

  • “Only people with six-digit salaries can afford to reach FIRE.”
  • “Only single people can reach FIRE.”
  • “Only married people can reach FIRE.”
  • “Only people without kids can reach FIRE.”
  • “Only white male millennial tech workers living in Silicon Valley who wear square ties can reach FIRE.”

And so on. They all boil down to a single justification pointing to some external reason why it’s not realistic for you to reach FIRE, taking all of the responsibility off of you.

My Take

Of all the criticisms of the FIRE movement, this one contains the least truth.

Yes, the more you earn, the faster you can theoretically reach financial independence. But spending habits are hard to break, and high earners grow accustomed to high spending. In some ways, it’s easier to earn more and hold your spending steady than it is to cut your spending in half.

Whether you’re married, single, have kids or don’t have kids, each status has its advantages and disadvantages for reaching FIRE. Having two incomes can help, but only if your spouse is equally committed to financial independence. And many families live on a single income.

The same goes for race, gender, work type, and any other identifier you want to swap in. When you stop pointing to external reasons for why you can’t do something and accept that your own decisions determine your outcome, it’s both freeing and terrifying.

You’re behind the wheel, and you get to choose where you want to go and how fast you get there.


The Formula to Reach FIRE

If anyone can reach financial independence and retire early, then how can you do it?

There are many paths to FIRE and many strategies for building passive income, but they all share common denominators. Here are the key steps to take.

1. Set a Target for Spending & Passive Income

To get anywhere, you first need to know where you want to go. Set a target for passive income, starting with the minimum amount you can spend each month and still be happy. After reaching financial independence, you can always choose to keep working, earning, and building more passive income.

By way of example, let’s say you want $4,000 per month in passive income. Now that you have a target, you can start figuring out how to reach it.

2. Set a High Savings Rate

The gap between what you earn and what you spend is one of the most critical numbers for building wealth, not just for FIRE. Look for ways to spend less and save more.

In particular, three costs make up roughly 70% of the average American’s budget, according to the Bureau of Labor Statistics: housing, transportation, and food. These three expenses offer the greatest room for savings.

For example, you could take a job that provides free housing to reduce your housing costs. You can try one of these 10 ways to minimize your transportation costs. You can bring your lunch to work and save hundreds of dollars per month. There’s always a cheaper – or even free – alternative to traditional spending. Look no further than these options for traveling the world for free.

To reach FIRE in five or 10 years, aim for a savings rate of 50% to 70% of your income. It’s not easy, but if it were easy, everyone would work for five years and then retire.

3. Maximize Your Active Income

The more you earn, the more you can save. Start working on getting that promotion or raise, find a better-paying job, or even change careers to earn more.

And your income potential doesn’t end with your full-time job. Look into side gigs to generate extra money. You can even turn your hobby into a money-making business.

The trick is to avoid lifestyle inflation and not spend more just because you start earning more. All that additional income should go straight into income-producing investments.

Pro tip: If you’re looking for a way to make some extra money on the side, consider Instacart. With Instacart you’ll earn extra income going grocery shopping for others. Since you’ll be able to set your own hours, you can work as much or as little as your schedule allows.

4. Invest for Passive Income

From dividends to rental properties, private notes to art (yes, you can even invest in art through Masterworks), crowdfunding websites like Groundfloor to bonds, you have plenty of options for generating passive income.

Personally, I like rental properties for high-yield income and stocks for diversification and long-term growth. One enormous advantage of rental properties is that you can leverage other people’s money to build your portfolio of income-producing assets.

For example, say you take $25,000 and use it as the down payment to buy a fixer-upper for a rental property. You cover closing costs with a seller concession and finance the renovation costs with a hard money loan. Upon completion, you refinance the property with a cheaper long-term mortgage and pull your original $25,000 back out.

You now have a property generating monthly income with no net cash investment from you. You can repeat this process indefinitely, creating a new stream of passive income with each property. It even has a fun acronym in the world of real estate investing: BRRRR, or “Buy, Renovate, Rent, Refinance, Repeat.”

Pro tip: If you’re interested in real estate but don’t want to own physical property, look into DiversyFund. It allows you to build wealth through commercial real estate, and you can get started with just $500. Sign up for DiversyFund.

5. Know Your FIRE Ratio

As they say in business, that which gets measured gets done.

In addition to your savings rate, one crucial number to track is your FIRE ratio, otherwise known as a FI ratio. It’s the percentage of your monthly expenses that you can currently cover with your passive income.

For example, if your monthly expenses total $4,000, and you currently have $400 coming in from investments every month, you have a FIRE ratio of 10%.

When your FIRE ratio reaches 100%, pop the champagne cork because you’re financially independent. You can retire and never work another day if you like. Or you can keep working, either in your current career or a fun, low-stress second career.

I also like to track my net worth through the budgeting app YNAB, though I acknowledge that it’s largely a vanity metric. For financial independence, your net worth is only as relevant as its ability to generate ongoing income for you.

Finally, keep an eye on your asset allocation as well. At the beginning of your journey to FIRE, your investing strategy should focus on growth regardless of short-term volatility.

After all, if the stock market drops by 20% while you’re working, it’s no skin off your back – quite the opposite since you’re buying rather than selling at this point in your career. But as you get closer to retirement, income stability and reliability become more important. Without your full-time job to pay your bills, you become vulnerable to sequence of returns risk.

Look for ways to reduce risk in your stock investment portfolio as you get closer to retiring, regardless of your age.


Final Word

When you retire young, don’t expect help from Social Security or Medicare. You won’t qualify for many years, if at all.

Of course, the purchasing power of Social Security benefits has been declining for decades, losing 30% between 2000 and 2020, according to The Senior Citizens League. And the Social Security Administration admitted in 2018 that its spending deficit puts it on track for insolvency by 2034.

As for health insurance, if you retire young, you can exercise the same health insurance options as the self-employed.

A 50%, 60%, or 70% savings rate is not easy. It’s not fun to drive a 10-year-old beater while your friends drive brand-new BMWs. But it’s a lifestyle choice based on priorities: Would you rather build enough wealth to retire young, or would you rather spend most of your paycheck now?

There’s no wrong answer. But those willing to spend less today get to play tomorrow while their colleagues continue grinding away at work.

Источник: https://www.moneycrashers.com/fire-movement-financial-independence-retire-early/

What to do in your 20s to retire before 40? Is it really possible?

how to retire before 40sKnow what to do in 20s to retire before 40s

Bored of 9-5 job? And want to retire early in your 40s, or even earlier? Well, you may not be the only one thinking on this line. Discussions around retirement before the 40s may be relatively new for India as the predominant mindset here is of retiring at 60 or 58. But in the US, almost a kind movement to retire early has been going on. Many individuals have tried to reach this goal of retiring at 40. Before setting such a goal, however, few questions you should ask yourself: Do I really want to retire before 40? Is it really possible? Recently at a retail investor-focused online event ‘Thrive’ organised by Groww, CA Rachana Ranade delved deep into this topic with some interesting insights. Here is a summary and key points from her session that may help you if you are also planning to retire before 40s.

“In the USA, this movement (of retiring before the 40s) started very predominantly where people were more interested to slog, to earn, to spend with very very conscious efforts and then try and save a lot of money and retire rich early,” Ranade said. She added that this movement was called FIRE – Financial Independence & Retire Early – movement. There were two elements of this movement: Financial Independence and Early Retirement.

Related News

Without financial independence, one cannot retire early. But what does this financial independence mean? There are multiple interpretations of financial independence:

1. Financial independence is basically based on the concept that instead of you working for money, money should work for you. It is said that when your passive income is more than your active income, you may say you have achieved financial independence.

2. You don’t have to depend on a 9-5 job. There should be other sources earning revenue for you.

The FIRE movement was based on three parameters: Extreme savings, Frugality and Generating a passive income.

You might have heard of the 50-30-20 rule, which basically means 50% of your income should go for your needs, 30% for wants and 20% towards savings. If you go by this rule, Ranade said you may not be able to retire before 40. For that, the FIRE movement prescribed that 50-70% of total income should go towards savings. So what are the three steps you should take to retire before 40? Learnings from the FIRE movement can be summed up in three points:

First, Determine your saving percentage: You should be prepared to save up to 50-70% of your total income.

Second, calculate your target retirement corpus. Wondering how much you would require on retirement? Well, Ranade said that under FIRE, they gave a formula to calculate this: Multiply total annual expenses with 25 to find the retirement corpus you may require. For example, if your annual expenses is Rs 10 lakh, you would require Rs 10 Lakh x 25 = RS 2.5 crore as a retirement fund under FIRE.

Third, find out how long will it take you to reach the goal.

There are three approaches prescribed under FIRE:

Lean FIRE: Try to minimise your expenses and maximise savings.

Fat FIRE: Spend a little more. Under this, you will be able to retire early but not as early as you want.

Barista FIRE: In this, you save enough money which will allow you to retire early. At the age of 26-28 years, try to get that much money to go head with your own business/startup. If your startup clicks, you may be able to retire before 40.

All of the above concepts were made famous in the US. But in the Indian context also you can calculate what you require to retire early. While doing all these things, there are certain points you required to follow to retire early:

  • Redirect your cash gifts or pocket money. Better put them in a bank account or invest.
  • Career planning: Plan your career very early. Start planning at an early age. If you execute your plan well, chances of success and reaching the goal would be fairly higher.
  • Avoid or have minimum Debt. There are many people who think that credit card is a must. Well, the credit card is a good thing if you spend wisely. But if you are using your credit card without giving a second thought, it will be very bad for you. If possible try to avoid a debt if it is not really required.
  • Reduce your spending. For that follow a “magical formula: Instead of following the “Income-Expenditure = Savings” formula, follow “Income-Savings = Expenditure” formula. That is, set a saving target from whatever you are earning and spend the remaining amount. In that case, you will be able to attain the concept of FIRE at the right age.
  • Get yourself insured: You need to do this so that your dependents are taken care off in case of an emergency. If you are not insured, whatever you have saved for a long time may go for a toss if there is a medical emergency in the family.
  • Build an emergency fund: No matter how much you are investing or earning, an emergency fund is something that is a must.
  • Have a backup plan: If one plan doesn’t work, you should have another plan to reach your goal to face situations that may be beyond your control.

Ranade further suggested that you should never withdraw interest earned on a deposit. Let it remain invested to earn interest on interest.

How to diversify portfolio

Ranade shared different case scenarios for explaining how to diversify the portfolio:

If you are a young employee with no dependents:

50% equity scheme, 20% direct equities, 10% index ETF, 10% international fund and 10% liquid scheme. Your maximum investments should be in equity. There is a thumb rule: “100-your age” should be the proportion of your investment in equity.

If you are the only income earner in the family and 2 kids going to school:

40% in equity scheme/direct equity; 20% in index ETF, 15% in FDs, 15% in Debt scheme and 10% in liquid scheme.

Single income family with not yet settled grown-up children

30% equity scheme, 10% direct equities, 20% index ETF, 20% Bank FD, 20% debt scheme, 10% Liquid scheme

She said that the above are just examples as there is no one thumb rule. Had it been so, why would there have been portfolio managers? Ranade quipped.

You should check based on your own background and then you can decide on how to diversify your portfolio.

Big question: Why you want to retire early?

Ranade said that before setting an early retirement goal, you should ask yourself why you want to retire early? Is it really really required. You should ask yourself: Whether you love your job? Are you passionate about it or not? Life is uncertain. It is a wholesome concept. “People are just going mad behind earning money. Dont do that. I feel that if you are doing a job which you love, retiring at 50 or even retiring at 60 will not be a problem,” she concluded.

Thrive by Groww is an initiative to bring the smartest minds of India to talk about money. Aimed at retail investors, the virtual event was held on March 20, 2021.

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Источник: https://www.financialexpress.com/money/what-to-do-in-your-20s-to-retire-before-40-early-retirement-planning-in-india/2224794/

I want to join the FIRE movement, become a supersaver, and retire early: Here's how I plan to start

As someone who often writes about how others can save money for retirement, I've never actually given much thought to when or how I'll leave the workforce myself. So when deciding on ways to secure my financial future, I figured jumping right in the flames would be a good way to start.

In other words, I'm going to try "FIRE," or the financial independence, retire early movement, which calls for people to save huge chunks of their income while they're younger in order to retire in their 30s or 40s. This mindset, which requires being frugal and extremely budget savvy, is gaining steam with everyday Americans and has made luminaries of people like "Financial Freedom" author Grant Sabatier.

Supersavers put away 50% or more of their income and live on what's left. Based on my past vices, like spending $2,300 a year on Starbucks and loving it, I think I can safely say I'm not one of them. Yet.

Still, since the idea of trading in my computer keyboard for a West Coast cabana sounds pretty nice, I'm giving FIRE a shot.

Video by Stephen Parkhurst

Deciding which FIRE to burn: The traditional method vs. the 'lean' way  

There's more than one way to go about this, so figuring out which method will work best is key. While FIRE is all about financial freedom, it will look different for everyone depending on their goals.

There are several variations within the community. I narrowed it down to two:

  • Traditional FIRE: With the standard technique, savers determine what their expected annual expenses will be after they leave the workforce, then multiply that number by 25 to reach a comfortable retirement amount. Choosing this route means I can only spend 4% of my savings each year but will conceivably not run out of reserve funds, barring a big unexpected expense. Retired Americans ages 65 and older spend about $50,220 annually, notes the Bureau of Labor Statistics. Using that marker, I'd need to cache $1.2 million to live out my golden years comfortably.
  • Lean FIRE: This method focuses on a minimalist lifestyle and lean budget. The idea is to save more money now and spend less later. People using this strategy reevaluate their expenses to cut costs while they're working and often live off $40,000 a year or less after calling it quits. The advantage: It doesn't take as long to store the funds you need. The downside: I would have to move to a cheaper state, sell my car, and possibly eat rice and beans every day to cut down costs.

I'm planning to start slow

Even if you do manage to save a lot of money while you're young, those dollars will have to last the rest of your life. While I can definitely get behind the idea of sipping margaritas on a beach somewhere when I'm older, I don't want to deprive myself of good food and drinks right now.

So I'm going the traditional FIRE route, and the first step is customizing my number. I started off by playing with the numbers on Grow's retirement calculator, which specifies a goal based on your age, income, current savings, and outside factors like inflation. Then I compared that to what 25 times my post-work life spending would be and found an amount I felt comfortable with.

To maintain a smooth post-work life (assuming I retire at age 67), I need to save about $1,100 a month. Since I'm in my 30s, if I'm aiming to retire before age 50, I need to amp that up. Here are the steps I'm going to take.

Keep expenses low. I have to trim my spending. I can't see myself eating mostly ramen (and neither can my doctors), but I can manage to swap a dinner out each week for a less expensive homemade meal. 

Video by Jason Armesto

Reducing how much I spend on food, streaming services, and even housing can help, but Idon't necessarily need to go to extremes, since there are other ways to improve my financial picture and get closer to my goal.

Boost income. Getting a side hustle or part-time job is a great way to earn extra cash. I don't think I'll have the bandwidth for that, but I'm planning to look for other ways to up my income. Namely, taking advantage of any raise or cost of living salary increase that presents itself.

Pay down debt. Along with millions of other borrowers, I owe part of the collective $1.7 trillion outstanding student loan debt. I also have a credit card balance and other bills I need to pay. Part of the money I save from cooking at home, driving less, and taking a break from bingeing "American Horror Story" I'll put towards those financial priorities.

Prioritize investing. Investing is also an important step. For a lot of Americans, that means building and diversifying a portfolio of stocks and bonds that can weather market volatility. That's included in my plan, though I'm really aiming to pay myself first by contributing to my 401(k) and other vehicles that benefit from compound interest.

I'm going to focus on the big picture

You don't have to be super rich or money savvy to start saving more, and more ambitiously, for your future. It does help to have resolve, though, and to be OK with being the odd one out in your social group.

"My friends were all going out, spending a ton of money — I lived in a crappy apartment and drove a crappy car," Sabatier previously told Grow. "The biggest challenge on the financial independence path was to choose to live my life differently than the other people in my life."

Detractors argue that FIRE is for high earners and extreme penny pinchers. It seems to me that the movement is about changing your individual lifestyle to match your financial aspirations, and I think I can do that. I don't know how easy my journey will be, but laying the groundwork should help light a spark.

More from Grow:

Источник: https://grow.acorns.com/fire-retirement-journey-how-im-starting/

5 Replies to “Financial independance retire early”

  1. @Vipul Motivation bhaiya mai to appko nahi janti par kya aap meri ek help kroge mai ek ladki hu or mai knowledge full video banti hu par meri video jayada logo tak nahi pahunchati so bhaiya aap thodi si help krdo ki ek ladki bhi iss field mai aage aa sake

  2. Some of these links expired, so I updated the description. You should definitely take advantage of whatever you can though...it's literally free money!

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