5 Items to Consider for Financial Independence and Retiring Early
Is F.I.R.E. just a dream or a dream that can be accomplished? Find out for yourself by assessing these 5 items.
Financial Independence and Retiring Early (F.I.R.E.) is a goal and dream of mine. Isn't it for you? And retirement means different things to everyone, which is also fun to hear about! It could mean sipping piña coladas on the beach reading a book every day or traveling the world for a year straight setting foot in every country at least once or simply using your time to relax and stay home with your family.
Ummm… All of the above?
Retirement for me means quitting my W2 job and not having the need to work. I’m tired of trading my time for money in the corporate world and could not imagine doing it for another 30+ years!
But retirement for me is not necessarily never working again. I actually couldn't imagine that! I’d go crazy not being productive to some capacity! Retiring early from corporate would give me the option to work full-time or part-time if I wanted to. I’d rather do things I enjoy that do not feel like work! Don’t you?
In the quest toward Financial Independence and Retiring Early, I would consider going through each of the following 5 items before getting started on your journey.
1. Assess Your Goals and Finances
The first step towards an early retirement is assessing your goals and finances. You must consider what you want to achieve in retirement and what lifestyle you plan to live.
Things will be more expensive as we age into retirement so keep that in mind when choosing your lifestyle.
It’s essential to factor in inflation, healthcare costs, and expenses that you don’t have yet, such as long-term care. Write down your total monthly expenses, including taxes, housing, utilities, and other miscellaneous items. Subtract these expenses from your monthly income to determine how much you need to save.
This will give you a reasonable base number to start with for saving towards your monthly expenses in retirement. I'd also recommend accessing this number frequently throughout your journey to make adjustments to the numbers as needed.
2. Develop a Savings and Investment Strategy
There are several ways to save and invest your money. One common method is through a 401(k) or traditional IRA, which lets you contribute pre-tax money to your retirement account. Or you can go with the Roth option to contribute after-tax dollars.
I prefer Roth options because taxes will likely be higher in the future, so I’d rather pay taxes now!
Another option is to invest in low-cost index funds, which offer diversified investments. When developing a savings and investment strategy, remember to account for inflation and aim to save at least 25 to 30 times your annual expenses depending on the age you want to retire at. The sooner you retire, the more savings you will need.
3. Live Frugally
As much as I don’t advocate for the idea of living frugally, I’ve noticed those individuals who did retire early did just that. It means rethinking your lifestyle and prioritizing your expenses. You have to be honest with yourself about your wants and needs while on the road to retirement.
For example, avoid buying expensive things that you don’t need like a new car over a used car, try cooking your meals at home and limit your outings to fancy restaurants, and stick to your list and your budget when shopping for necessities. By living frugally, you can invest and save more of your money increasing your chances of retiring sooner.
The F.I.R.E. movement can be accomplished, but no one said the road to early retirement would be easy.
4. Build Multiple Streams of Income
Another way to retire early is to build multiple streams of income, whether they be active or passive. For active income, you could work multiple jobs during your younger years so you can put away as much money as possible as fast as possible.
For passive income, you could include rental properties, stock dividends, or royalties from creative work. Just be sure these modes of income are truly passive!
If you are the property manager of your rental properties, then it’s not passive income.
Building multiple streams of income takes time and effort, but it can provide a stable financial future and allow you to retire sooner. Just be sure to keep the additional income streams as passive as possible to not turn them into another job.
5. Focus on Your Health and Well-Being
Finally, it’s crucial to focus on your health and well-being, including your mindset. This includes exercising, eating well, reducing stress, and having a positive mindset. When you’re healthy, you’re more likely to work efficiently and avoid issues that could hurt your financial goals.
Good health can also save you money on medical costs, allowing you to save more towards retirement. And having a positive mindset will keep you moving forward through your long journey of ups and downs.
The road to early retirement is possible if your mindset believes it.
Retiring early requires a solid plan and a lot of discipline. It’s not an easy feat, but it’s possible if you’re willing to put in the effort. By assessing your goals and finances, developing a savings and investment strategy, living frugally, building multiple streams of income, and focusing on your health and well-being, you can retire early and enjoy your time at your own pace.
Remember, early retirement doesn’t have to be a dream that’s out of reach. With the right mindset, vision board, and steps, it can be a reality!
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