For many, the days of working for a company for 30 or more years and trusting that company to take care of you in retirement is over. As we focus more on our financial future and our retirement years, we may begin to realize that past expectations will not fit our present-day needs or wants. Most working-age people wish for Financial Independence (F.I.) and to Retire Early (RE) -- or F.I.R.E. for short.
The goal behind the F.I.R.E. movement is to worry about making money less and to retire early – oftentimes long before the typical retirement age – F.I.R.E. enthusiasts aim to retire in their 30s or 40s. Most people see this concept as a pipe dream, but with intentionality and planning, it is possible to retire years early. Here are ten tips to help drive you toward achieving your F.I.R.E. dreams.
1. Define Your Goals
Based on the article "Retirement Spending: Choosing a Sustainable Withdrawal Rate" from The Journal of the American Association of Individual Investors, people's best rate to withdrawal from their retirement savings is four percent. In terms of pure numbers, typically, if someone is attempting to retire early, they should have saved 25 times their annual expenses within investments.
2. Cut Your Expenses
Some studies have shown that those seeking F.I.R.E. will have to save 50 to 75 percent of their income. Saving over half of your income may seem like a lot, but as many continue to live decades longer than anticipated, cutting your expenses is a must to live comfortably.
3. Learn to Live on a Budget
Most people are turned-off by the word “budget” and think that if you are on a budget, that automatically places you in the 'no fun' category. However, this could not be further from the truth. Have fun, just budget your enjoyment, and be prepared to tell yourself “no” when sales happen or see an "I want" vs. “I need” item. If you find yourself consistently overspending, then you might want to place that category of your budget in cash, so you only spend what you have in-hand.
4. Increase Your Income
Not only should you live on less than you make, but you should strive to increase your income. In today’s “side hustle” and “gig” economy, you may find ways to bolster your primary income during your down time.
5. Don't Increase Your Lifestyle with Your Income
It is very tempting to increase your lifestyle as your income increases. Steer clear of distractions like, a new car, bigger house, or that R.V. or boat you have been eyeing. Even dozens of small money temptations can take you off track. Keep your big picture goal in mind every day as you make financial choices.
6. Develop an Emergency Fund
According to Ready.gov, everyone should have an emergency fund of 3-6 months of expenses. When it comes to F.I.R.E., a small emergency can derail you from your goal. Having an emergency fund is a bit of insurance for life’s inevitable “uh-oh” moments. It might be a struggle for someone trying to invest every penny, so it’s a good idea to keep your emergency fund in a liquid account that can be easily accessed at your local credit union.
A significant part of F.I.R.E. is to invest your money. The key is to save enough to live off of the interest. To do this, you will need to work with an investment advisor and consistently save until you reach your retirement goals. At Financial Partners, we have experts who can review investment options.
8. Keep debt low or even at zero
One of the biggest thieves towards F.I.R.E dreams is debt. You could end up paying thousands to banks and other lenders, which in turn will drive funds away from savings. Studies have shown that you are more likely to spend more than you originally intended when you pay for things with a credit card. If you do use a credit card for rewards or other perks, try to pay it off in full each month or keep your balances to under 10% of your overall credit lines.
9. Keep Housing Costs Low
Another significant expense for most people is their housing costs. Find a home that fits your needs and budget but allows you enough space to live comfortably. Work to pay down your mortgage and keep your maintenance costs low so that you can use those funds towards your F.I.R.E. target.
10. Stay True to Your Life's Meaning
When you reach your goal of retiring early, it’s important to have a clear understanding of what you are going to do with your time. While some people say that they are going to travel, or fish on a lake, or do hobbies during that time, be sure it is something that gives your life meaning. You may find meaning in giving back to your community, planning events or fundraisers, or volunteering at a favorite organization.