Beginner’s Guide To The F.I.R.E Movement (Financial independence retire early)
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Last Updated on by Noni May
I always knew that I wanted to become financially independent, but since a few years I prefer to retire earlier. The older I get, the higher the AOW retirement age. I should only now be able to retire at the age of 73 .. And yes, I have always strived to only do nice work, so I love my job, but I can also imagine that at some point I want more ‘ life’. Of course I lived as a digital nomad for a while by traveling and doing business while traveling, but at a certain point I was looking for more stability. A house, routine, and greater goal to work towards. Building my business. Settle down. The Great Things Of Life. And so with early retirement to feel completely free. I am now often dependent on the evenings or weekends, taking vacation and planning and the feeling of being completely free is wonderful. Because fair is fair. Even when I’m free, I still think about my company and post on social media “because of the algorithm I have to.”
Lately the F.I.R.E. movement is gaining popularity. F.I.R.E. is the abbreviation for Financial Independence Retire Early. This is a movement that capitalizes on putting aside as much money as possible to be independent. And yes, I strive for that too. I started a few years ago with a plan that I still follow. And I’ve never written about it on my blog so it’s about time! My FIRE plan looks something like this:
1. Have a job you love
Finding work that you enjoy doing on a daily basis is essential to me, as is hard work. Not everyone who pursues the FIRE movement agrees. Especially Americans. They want to earn as much money as possible as quickly as possible, even if they hate their job. For me you completely miss the point: to hate your life for ten years and only then go “enjoy”. Your ten youngest years…. In which you should live. There are no guarantees that you will still be there after ten years, not to mention the effects of stress on your body. I made up this first point all by myself, because I think it is important to have a nice life NOW. To enjoy every day. But hard work is a must: take several jobs if necessary, go freelancing alongside your 9 – 5 or start a well-paid side-hustle.
I am someone who cannot resist hard work. Often working overtime, starting multiple companies and investing extra energy and time in ideas and to live the happiest possible daily life, this is only possible with work that is really fun to do. I don’t see my work as a hard task, but more as a hobby, something that I enjoy doing. This is the only way I can manage to work a lot. And that way, to earn enough money to one day become financially independent so that I can do other activities on the side, discover more hobbies or work because I like it, not because I have to.
2. Grow your income, multiple income streams
This is perhaps one of the most important points that are part of the FIRE movement: get more income so that you can retire faster and become financially independent. An important action point is: make the earned money work for you, see the next point.
3. Don’t just work for your money, let your money work for you
The only way to keep your money worth over the long term without loss from inflation and by making your money worth more without having to work is through investing. One of the basic principles from the American movement of FIRE is the “4% rule”. Save 25x your annual salary, invest it and make sure you take out 4% per year and you never have to work again!
4. Save, save, save
In addition to earning more money and using your money to allow it to become more naturally, it is important that you also cut the other side of the knife. Spend less = more money for the future. If you want to become F.I.R.E, you will now have to set aside a large portion of your income for later. Not quite clear yet?
If you now spend $ 50,000 per year, you will have to save $ 50,000 for each year you want to stop working earlier. If you have € 50,000 in income per year, that will not work because you will have nothing left if you save $ 50,000. If you earn $ 70,000 per year in this scenario, you will be able to save $ 20,000 per year – so you have saved 1 year earlier within 2.5 years. That takes quite a long time, so if you can live on 50% of your income, for example, it will go a bit faster. Especially if your expenses are less. Because spending $ 35,000 per year in this scenario also means saving $ 35,000 – retiring 1 year earlier in 1 year of saving. I think that on 50% of your income fares well if you live frugally, in this case it is important that you choose ‘1 category’ where you still want to spend some money, because otherwise you sacrifice too much on how you live now (see also point 1). In addition, you can cut into categories that matter less to you. I do not hand in, but I make conscious choices and always try to sell something first when I buy something new. Frugal living in a really frugal way is less necessary if you have more income, so ordering food once a week instead of twice is still fine without feeling guilty with more income.
The easiest way to save money while boosting your financial strategy is by setting up your saving account or banking at a free bank. I personally use this one, because I love the multiple saving accounts you can create for free, because I don’t have one saving goal!
For me, frugal living is mainly looking at where I really leave money or spend money on things that I do not use.
5. Take control of your finances and face your fears
Sure, you can easily ignore your finances for years by just checking your bank account every now and then, shopping until it is no longer possible and taking out a loan in case of emergencies and delaying the repayment of your student debt for as long as possible. But it is not smart. If you want to become a FIRE, you have to take control and ensure that you have as little debt as possible and as much capital as possible.
Find out now whether you pay interest on your student loan debt. Yes? Pay this off as soon as possible if you want to apply for a mortgage or pay interest. Be smart with your money and actively seek out whether it can be done smarter or cheaper. Do you have any loans? Refinancing a loan can certainly pay off, you can invest the money you save. Some FIRE followers also invest and invest a loan. If you consider that you follow a long-term strategy and the stock market is always in the plus in the long term (do not sell during a crisis!) Then it can be smart. If you do not have enough money to start investing now, you can consider taking out a strategic loan. Make sure you make a comparison so that you do not pay unnecessary interest or pay more interest than you receive from your investments.
Also make a repayment plan for your debts, plan for large expenses and make a strategy for extra retirement savings. If you use your annual margin every year, you can easily save much more pension. Get an accountant so that you can be smart with your tax return in order to save more where possible, who knows, you might be losing a lot of money! A little research works wonders, I would especially recommend reading more about the F.I.R.E movement!
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