By JAIDA REDWOOD
Have you heard of F.I.R.E. ?: Financial Independence Retire Early.
I learned about this movement in February 2020 and became obsessed.
It is a lifestyle that is dedicated to saving at a high rate. A common way to do it is by keeping your expenses low, while working to increase your income.
There are two different variations of FIRE, Lean FIRE vs Fat FIRE.
Lean FIRE: is when an individual has accumulated a savings of up to 25 times their annual income and takes on a more minimalistic approach to living.
Fat FIRE: is when an individual has a high-income and chooses not to live a minimalistic lifestyle. This individual usually lives in expensive cities such as NYC or San Francisco where frugality could be difficult.
People who are on the path to FIRE work to save up to 70% of their monthly income.
I know, it sounds crazy right!? However, there are ways to get to a higher savings rate by eliminating expenses that you just don’t need.
A favorite example of mine is eliminating the expense of coffee.
Waking up 10 minutes earlier every morning to make a cup of coffee vs spending $4 on a cup of coffee can give you a savings upwards of $1000 a year.
Here are the two easy steps to calculate your FIRE number.
Calculate your annual expenses.
Multiply your annual expenses by 25.
Example:
Annual Expenses of $40,000 * 25 = FIRE number of $1,000,000
This is the number that you would need to reach within your portfolio investments to obtain financial independence.
The Logic Behind The Number
The idea is that you can live off of taking 4% from your portfolio investments every year and comfortably pay your annual expenses.
On average, stocks return about 10% each year before inflation. Taking out only 4% each year leaves returns that can be reinvested, to maintain your portfolio.
Food for Thought
What are some expenses you can eliminate now?
- coffee
- monthly subscriptions
- grooming appointments
How can you begin to increase your income?
- Is it time to ask your boss for a raise?
- Any special hobbies or talents that could be turned into a side-hustle?
Always remember… stay positive, motivated, and resilient and you will be able to accomplish your goals one by one.
