FIRE 101 — A Starting Guide to Financial Independence and Retiring Early

Although I am relatively new to the world of investing, with around six years of experience under my belt, this journey has led me to a deep understanding of the FIRE concept — Financial Independence, Retire Early. This article is intended to share what I’ve learned about FIRE and how you, too, can embark on this transformative journey towards financial freedom.

What is FIRE?

FIRE stands for Financial Independence, Retire Early. It’s a movement that encourages individuals to take control of their finances to the extent that they can retire much earlier than the traditional retirement age. By saving and investing a significant portion of their income, individuals can build a substantial nest egg that can support their living expenses indefinitely.

Get Back Your Time!

We have two valuable resources in our lives: money and time. While we can earn more money by investing our time in work, we can never buy back the time we’ve spent. Traditional retirement plans often have us working from 9 to 5 until we reach 60 or 65 years old. This means we spend our most precious and vibrant years trading time for money.

FIRE aims to break this tradition. Retiring early means you can spend your time on anything that truly matters to you, such as going out with family, learning to draw, or playing the guitar. You won’t need to worry about financial pressure.

How?

The dream sounds sweet, but how can we achieve it? The main steps involve investing and controlling expenses.

Set Up the Goals — The first step towards achieving FIRE is to establish clear financial goals. This involves calculating your FI (Financial Independence) number — the amount of money you need to have invested to live off the returns indefinitely. A common rule of thumb is the 25x rule, which suggests you need 25 times your annual expenses to retire.

Reduce the Expenses — First, review your current status. Identify any unnecessary expenses (e.g., subscriptions to Netflix, HBO Max, Amazon Prime, etc.) and cut them.

Increase the Income — If you can’t significantly reduce your expenses, consider focusing on increasing your income. For your active income: Invest in your career by acquiring new skills, seeking promotions, or changing jobs for better opportunities. This can significantly increase your earning potential. On the other hand, work on passive income: Develop streams of passive income through investments such as stocks, real estate, bonds, and other ventures. Passive income plays a crucial role in achieving financial independence.

Let’s Go!

I hope this guide ignites your interest in the FIRE movement and aids you on your journey to financial independence. Remember, everyone’s path is different, and sharing experiences can be incredibly helpful.

I’d love to hear from you in the comments below. Whether you’re just starting out or you’ve been on this journey for a while, share your story or any questions you might have.