Today, I have a guest post from Patricia Sanders, writing about how to achieve FIRE, which occasionally seems far away for this working dad. It probably doesn’t help that I’m batting about .400 with this list of suggestions. (And yes, the caption on the picture is mine.)
How can you achieve FIRE? Here’s how to do it…
Who doesn’t want to achieve FIRE (Financial Independence/Retire Early)?
Working becomes fun when you do it because you enjoy it, and not just for
money.
But before we discuss how to achieve FIRE, let’s have an idea about what it
is all about.
Basically, what I feel is FIRE means you can decide about what to do in
life without worrying about money constraints. It is our basic nature to
consider our financial situation whenever we want to plan something, be it
a vacation or planning a long-term goal.
When you achieve financial independence and can retire early, you can take
a call on your retirement as per your wish and you can enjoy life the way
you want to.
Here are a few tips to achieve Financial Independence/Retire Early:
Plan a budget and save more than 50% of your income
Your first and foremost task is to plan a suitable budget to try to save
about 50% or more of your monthly income. It is not that difficult even if
it seems to be so.
If it is too hard to plan a budget of saving about 50% every month, start
with saving 30%, and increase the amount to 35% and so on. It will help you
avoid the feeling of being deprived.
Moreover, if your salary increases, it’ll be an added advantage. But in
that scenario, try to maintain the percentage so that the target amount you
save is more.
You can practice frugal lifestyle as it helps quite a bit to save more and
reduce expenses on items which may not be that important.
Someday, I hope to achieve FIRE and have nothing better to do than take pictures of my feet too! Picture courtesy Pexels.
Opt for automating your savings
Just as you tend to spend more when you buy with credit cards, you’ll be
able to save more if you opt for automating your savings and investments.
When you don’t deal with physical money, you don’t bother too much. It’s a
human nature.
So, talk to the financial institutions and opt for automating your savings
to pay yourself before you start spending on your needs and wants.
Calculate your current net worth
By saying this, I mean you need to evaluate where you are standing financially. To do so, make a note of your liabilities and your assets so
that you have a clear picture of your net worth.
Now calculate how much you need to have to achieve financial independence and maintain your present lifestyle. It will help you get that amount you should work towards achieving.
Roughly you can calculate that your net worth needs to be about 25 times of
your annual expenses.
Remove the word ‘debt’ from your life
How will you save when you are in debt? The greatest benefit of debt-free
living is that you can save quite a significant amount every month.
So, first of all, you need to be debt free, that is, repay all your unsecured debts. Along with it, make a plan to manage and repay your secured debts as early as possible. Then only you’ll be able to work towards achieving FIRE.
To repay your outstanding debts, either try DIY (Do It Yourself) options or
look for professional guidance. You can look for mortgage refinancing if
that option suits to pay off your home loan or to make your mortgage more
manageable. You can even repay your home loan if there’s no prepayment
penalty.
Diversify and invest your money in different places for a better ROI
Diversification is important as it can reduce your risk and you can get
back from some sources even if you incur a loss from one place.
Also, while investing, it is better to plan for long-time investments
instead of opting for short-term profits.
Stocks are a good option to invest to get better returns. However, you can
also invest in mutual funds as well.
You can talk to a financial adviser and plan a good strategy.
Grab a good opportunity to earn extra
Having an extra income always helps, be it being debt free or opting to
retire early. You can also use the extra amount to invest in the stock
market while you use your regular income to invest in a retirement account
or to build an emergency fund.
A side income also helps to tackle sudden expenses and help you avoid debt
and enjoy debt-free living.
Finally, a good news for you people who think that the concept of FIRE, or
Financial Independence/Retire Early, is not for them: different kinds of
FIRE are there to suit different lifestyles.
So, it’s time for you to plan your movements to achieve financial freedom
and live life on your terms.
Note: this post may contain affiliate links. View my affiliate link disclaimer here.