How to Reach Financial Independence — Playing With FIRE
It’s not difficult to become financially independent; in fact, it’s shockingly simple, and there’s a good chance FIRE is in your future if you want it to be. Financial independence is all about deciding what you want to do with your life and saving money for it.
How to become financially independent
There are no tricks, no secrets, and no need to be a personal finance expert; becoming financially independent boils down to two main steps: increasing your saving rate and investing the difference. It’s not about making a lot of money; it’s about being responsible with the money you have now.
Your saving rate
The higher your savings rate, the sooner you’ll be able to reach financial independence. If you wait 56 years to retire, you won’t have much of a retirement to enjoy.
Investing the difference
After you’ve started saving money, the next step toward financial independence is to invest. Investing doesn’t have to be difficult or time-consuming, and the money you’ve invested will eventually earn enough money to support you without you having to work, which is when you’ll be truly financially independent.
How much money do you need to be financially independent?
According to a Trinity University study, if you withdraw 4% of your money annually in retirement, you have a 96% chance of never drawing down on the principal. To put it another way, you’ll need to save 25 times your annual expenses before you can safely retire.
Test it out: your financial independence calculator
Put in your current numbers to calculate your age to retirement. If the results aren’t what you’re looking for, think about what you’d be willing to change and try again.
Now it’s your turn.
Financial independence is a journey, but it’s one worth taking to help you start living the life you want. Just thinking about your current financial situation and looking for ways to improve it gets the gears turning, which is all it takes to move forward.
Know why you want to be financially independent
When you’re ditching cable to save $100 a month, consider how many afternoons you’ll have with your child.
Start with happiness
Too often, we fall into the trap of buying the things we think will make us happy rather than living a life where real, true happiness is just one paycheck away. Studies show that prioritizing more time over more money and spending on experiences rather than things are some of the things that make people happy.
What makes you happy?
Make a weekly list of the top five to ten things that bring you joy, highlighting anything that costs money and emphasizing how many things are free.
Why are you spending on anything else?
You’d be surprised how much money I spent on ATM fees because I didn’t want to go out of my way to use my bank’s ATM.
Take the next step
Immersion in education and stories from others who had achieved financial independence was what sparked my journey to financial independence, and I created the Playing With Fire Documentary and Book to share the ins and outs of my journey as well as advice from experts within the FIRE community.
What should I do next?
To calculate your time horizon to financial independence, use our Retirement Calculator. Personal Capital is the most comprehensive free financial tool available online for managing your finances.
We love the free features Personal Capital offers, including the ability to:
Our favorite financial management tool is Personal Capital, which is free to use and takes less than a minute to sign up for. By signing up for free and consolidating all of your accounts in one place, you’ll be well on your way to financial independence.
How do I start a FIRE journey?
Where Do I Begin?
- Step 1: Determine your FIRE Number.
- Step 2: Pay Down High-Interest Debt First.
- Step 3: Reduce Your Expenses.
- Step 4: Learn To Love Saving.
- Step 5: Find An Investment Vehicle.
- Step 6: Increase Your Income.
- Step 7: Keep Moving Forward.
How much does fire movement cost?
FIRE investors must spend strategically once they achieve financial independence in order to maintain that independence over time. The 4% rule employs a dollar-plus-inflation strategy, in which you spend 4% of your savings in your first year of retirement, then increase that amount annually by inflation after that.
How much do I need to save to reach FIRE?
SAVE: Most Fire savers set aside 25% to 50% of their monthly income, and you’ll need to decide where to put those savings u2013 in ISAs, tracker funds, or general investment accounts u2013 to get the most out of them.
What is FIRE journey?
The FIRE (Financial Independence, Retire Early) movement is a way of life aimed at achieving financial independence and retiring early. The goal is to accumulate assets until the resulting passive income is sufficient to cover living expenses during retirement.
What should I invest in for FIRE?
F.I.R.E. stands for “Financial Independence, Retire Early,” and the goal is to save and invest aggressivelyu2014between 50 and 75% of your incomeu2014so you can retire in your 30s or 40s.
How can I get FIRE?
In 11 Easy Steps, You Can Achieve FIRE (Financial Independence, Retirement)
- Reduce your housing costs.
- Stick to used cars that you own outright.
- Use rewards credit cards.
- Cut back on food and grocery costs.
- Ditch cable and subscriptions.
What is the 4% rule?
The 4% rule is a commonly used rule of thumb for retirement spending. It’s simple: add up all of your investments and withdraw 4% of that total during your first year of retirement, then adjust the dollar amount you withdraw to account for inflation in subsequent years.
What is the 3 rule in retirement?
This advice is based on the principle of “hope for the best, plan for the worst.” If stocks fall and you need to withdraw 4% to pay your bills, you’ll still be safe. This means that the same $1 million portfolio would generate $30,000 in annual income rather than $40,000.
How long will $300000 last retirement?
So, if you have $300,000 saved up and withdraw 4% per year, that sum alone will probably last you about 25 years in retirement.
How is FIRE number calculated?
The first and most popular formula is FIRE number = 25 x annual expenses, which is based on the Trinity Study, which is the more well-known name for a 1998 paper titled u201cRetirement Savings: Choosing a Sustainable Withdrawal Rateu201d published by three Trinity University finance professors.
Can you retire on 500k?
The short answer is yesu2014$500,000 is enough for some retirees; the question is how that will work out for you, and what conditions make that work well for you. With some retirement income, relatively low spending, and a little luck, this is doable.
How can I be financially independent in 5 years?
In 5 Years or Less, Learn How to Become Financially Independent
- Examine your finances in detail.
- Pay off debt.
- Cut expenses.
- Increase income.
- Invest strategically.
- Save 80% of your income.
- How to Calculate Your Savings Rate.
- Example of Using FI Formulas.
How do you retire with FIRE?
FIRE is a concept based on the idea that retirement is determined by a financial number rather than a person’s age, and it focuses on keeping expenses low and savings high, which usually means saving 50% to 75% of your annual income to retire well before the age of 65 and usually debt-free.
How do I start investing?
Here are a few pointers to help newcomers save money for the future.
- Set Long-Term Goals. When investing in stocks and shares, setting long-term goals can be extremely beneficial.
- Risk Level.
- Emotional Control.
- Study the Stock Market.
- Diversification of Investments.
- Avoidance of Leverage.
How much do I need to retire at 55?
According to these parameters, you may need to save 10 to 12 times your current annual salary by the time you retire, with experts recommending that you have at least seven times your salary saved by the age of 55, which means that if you make $55,000 per year, you should have at least $385,000 saved for retirement.