A Beginner’s Guide to FIRE – Financial Independence, Retire Early

  • A Beginner’s Guide to FIRE – Financial Independence, Retire Early

  • freeman

    March 11, 2023 at 5:48 am

    Financial Independence Retire Early (FIRE) is a movement that advocates for achieving financial independence and retiring early through frugal living and investing. The goal is to accumulate enough assets to support one’s lifestyle without needing to work for income. This can be achieved through strategies such as reducing expenses, increasing income, and investing in assets with high returns.

    FIRE has gained popularity in recent years, particularly among millennials who prioritize financial freedom and work-life balance. The movement has inspired people to rethink their relationship with money and pursue a more intentional lifestyle.

    There are different approaches to achieving FIRE, with some aiming to retire as early as their 30s, while others strive for financial independence without necessarily retiring early. The key is to create a plan that aligns with one’s goals and values, and to stay committed to the plan over the long term.

    Although FIRE can provide a path to financial freedom and flexibility, it’s worth noting that it may not be feasible or desirable for everyone. It requires significant sacrifices in the short term, and there are risks involved in investing and relying on investment returns. As with any financial decision, it’s important to do thorough research and seek professional advice before making any major changes to one’s financial plan.

    With that in place, lets get into the summary of this video:

    • Even if you start late, it is still achievable in a non-traditional age (Generally 70 yrs is considered retirement age). The FIRE approach could help you achieve financial independence slightly earlier or slightly later than normal.
    • Generally for folks who make 50K annual income and more.
    • Origins from Mr. Money Mustache’s blog (around 2012) started the concept.
    • Borrows from William Bengen’s 4% rule = you need 25 times your annual expenses saved and invested.
    • Assumptions:
      • 5% returns on investment (after adjusting for inflation).
      • Your retirement will last 30 years (generally), but could go up to 50 years.
    • Once you reach your FIRE number, it would definitely be helpful to continue working by choice (but not out of survival needs), to substitute your income to add additional cushion to your savings.
    • Focuses on Expenses (reducing it), not Income.
    • There are several different types of FIRE that individuals can pursue, including:
      1. LeanFIRE: This approach involves minimizing expenses as much as possible to achieve financial independence with a lower amount of savings. The goal is to live frugally and save aggressively to reach a level of financial independence that allows for early retirement.
      2. FatFIRE: This approach involves a more aggressive saving and investing strategy to achieve a higher level of financial independence. The goal is to accumulate a larger nest egg that allows for a more comfortable retirement with a higher level of spending. Example: Aim for 100K living expenses during retirement, would require 2.5 Million savings.
      3. BaristaFIRE: This approach involves achieving financial independence, but continuing to work part-time or in a lower-stress job that provides a sense of fulfillment. The goal is to have more flexibility and control over one’s career and lifestyle, while still earning some income.
      4. CoastFIRE: This approach involves saving and investing aggressively early in one’s career, and then allowing compound interest to grow the portfolio while working a lower-paying or more flexible job. The goal is to reach financial independence without necessarily retiring early, but instead having the option to pursue a career that provides more fulfillment or flexibility.
      5. SemiFIRE: This approach involves working part-time or taking extended breaks throughout one’s career while maintaining financial independence. The goal is to have more control over one’s schedule and work-life balance, while still having the financial security to support this lifestyle.

      Overall, the type of FIRE that an individual pursues will depend on their personal goals, financial situation, and lifestyle preferences.

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