The F.I.R.E. Movement stands for “Financial Independence, Retire Early” — heavily investing and saving in order to reach the point of retirement early in adult life. Many news articles have come out on this topic in the past year, especially due to the growing trend of learning about personal finance and establishing financial stability.
According to Ramsey Solutions, people need to be putting away 50%-75% of their income toward savings and investing to reach the goal of retiring in their 30s or 40s. This is a very aggressive form of investing and budgeting, as experts suggest the average person put only 15% of their income toward savings, as reported by CNBC.
However, it is important to understand that the idea of the movement isn’t about never working again. It’s simply about not having to work a full-time job for survival. The idea is to only work whatever and whenever you like.
The key to succeeding in financial independence and early retirement boils down to four simple rules:
1. Start Early
As the F.I.R.E. Movement is picking up steam, more young millennials are thinking about their retirement ahead of time. This is extremely important because time is on their side. Due to the magic of compounding, money in savings and investment accounts grow with interest over time. More time — more interest.
2. Low Expenses
Cutting any unnecessary expenses, even if it’s only a couple of dollars, can really build up over time. Creating a budget and sticking to it takes great discipline, but is essential in order to establish the lifestyle you want later on. According to Nerdwallet, followers of F.I.R.E. like to abide by “the rule of 25.” This is saving 25 times your annual expenses to retire.
3. Boost Income
Minimizing expenses is not going to be enough — finding ways to get extra cash is also essential. Diversifying your income streams and creating side hustles are some ways to boost your income.
4. Save and Invest
Fortunately, you don’t have to start saving over 50% of your income right when you start. At the beginning, saving only 10-15% is normal and safer. Steadily work your way up to saving as much of your annual income as you can. The main accounts you would need include a 401(k), Roth IRA, and a high-yield savings account. Most people like to follow the 4% rule, which is having enough to the point where you can take out 4% of your investments in the first year of retirement and adjust for inflation in the years following.