June 1, 2018
How do you envision your retirement? For some, there's an idealistic image that many share of days spent walking along a warm beach, endless travel and a leisurely lifestyle. On the other end of the spectrum, some people haven't had the opportunities that would afford them the ability to stop working when they want, never get to retire in the traditional sense and struggle to live on a fixed income once they're no longer able to work.
There's also a middle ground, those who can afford to stop working and live a modest lifestyle. But the financial requirements for seniors have changed and grown over the years, and so this middle option may be less common as a result. Employer pensions and other retirement benefits aren't as prevalent or plentiful as they once were. Longer life expectancy and a rising cost of living can make it more difficult to live purely on Social Security benefits and retirement savings alone.
However, there are individuals and families who have been lucky enough to be in the position to retire decades before their 60s. They're part of a social movement known as FIRE – financial independence and early retirement – that has its own values, rules, subgroups and lingo.
What is FIRE?
The idea of becoming financially independent, when you can live off the income from your savings and investments, and retiring early, a notion that can seem too good to be true. Even if the end goal is desirable, it may not be possible for many, and in cases where it is possible, some may not be up for the journey. Early retirees may live in small homes, drive old cars and avoid eating out prior to retirement – all with the goal of accumulating enough savings to live on after retirement.
There is more than one way in which people have achieved FIRE. However, there are a few basic rules to live by that could help you get there:
Reaching financial independence doesn't necessarily mean you have to quit your job. However, you now have that option and the freedom that comes with it.
How to apply the movement to your life
Realistically, reaching FIRE may not be an option for everyone. But increasing the gap between your income and expenses such that you have more money coming in than going out could help your financial situation even if you don't think you can retire early (or event want to).
Here are a few ways to incorporate the guiding principles of the FIRE movement into your life without going to extremes:
Evaluate your priorities. This is always a great place to start. No one else gets to decide what's truly important in your life. If you take the time to evaluate what you want and what's important to you, it can help you set clear goals to strive for and a benchmark by which to measure the decisions that shape your financial future.
Decrease expenses. No matter your aptitude for a frugal lifestyle, look for ways to cut costs in different areas of your life. Housing, transportation and food are often major monthly expenses, so it could help to focus on these areas. Some FIRE devotees sell their cars or trucks and walk or bike to work. Organizing a carpool or taking public transportation could be a better fit for your lifestyle.
Increase your income. There are many ways to increase the other side of the equation as well. You could look for a side gig or negotiate a raise with your current employer. If you have the funds to make it work, taking on an investment property could also be a key to higher income.
Avoid lifestyle inflation. It can be tempting to “upgrade” your lifestyle when your income increases. However, if your goal is to increase the gap between your income and expenses, you'll want to maintain your lifestyle while your income rises.
Aim for higher returns. Whether you're a savvy investor or don't know a stock from a bond, a little research and planning could help you make more money with your money. Even low-risk actions, such as moving your money to a bank or credit union that offers a higher interest rate, could help. Lowering the fees you pay on checking, savings and investment accounts could also help increase your returns.
Even if early retirement is not in your game plan, there are still valuable lessons and takeaways from the examples of those who have been able achieve this goal. If you're intrigued by some of the concepts or think you may want to join others on the path to FIRE, there are resources and tools that can help. You can use basic online calculators to create a budget or check your savings progress and help you determine when you'll be able to retire.
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