Early retirement is a dream that many people aspire to, as it allows one to have the freedom to pursue their passions and interests without being tied down by financial constraints. For people who want to retire early, the FIRE (Financial Independence, Retire Early) concept is a good way to get to financial independence.
The Concept Of FIRE
FIRE, or Financial Independence Retire Early, is a movement that advocates for early retirement through saving, investing, and frugal living. Its goal is to save enough money, so you don’t need to work to pay your bills. This is a sustainable way to become financially independent. Here are three stages that you will need to cross in the journey of achieving FIRE:
Stage 1: This involves ascertaining why early retirement is your goal and overhauling your spending, saving, and investing habits to prepare for it. While you’re figuring that out, focus on financial independence rather than just retiring early.
Ask yourself what is prompting this decision. Are you really looking for financial independence to pursue something of your choice, or do you want to get rid of your job?
Check to see if you will have to make significant changes in how you spend, save, and invest to get ready for FIRE. Make sure you know the difficult choices that you may have to make during the journey.
Stage 2: This is the transition phase and needs careful planning because it’s not possible to get into something new overnight. It is not uncommon to experience twists and turns during this phase, and many people change their minds or come up with new business ideas.
Stage 3: This is the life you spend after attaining financial independence. This involves adapting to a new way of life.
What Can Speed Up The Process?
Retiring well also involves having answers to questions such as how much your monthly outgo would be or whether you would have enough to fund your needs and emergencies. Before you plan for your retirement, here are things that can push you closer to your retirement goal.
- Increase your income: This can be done through various means, such as finding a higher-paying job, starting a side business, or investing in income-generating assets.
- Live below your means: By spending less than you earn, you can save more and invest more towards achieving FIRE.
- Invest wisely: Invest in products with higher returns than other investment options. Consider investing in low-cost index funds or ETFs.
- Minimize debt: High-interest debt, such as credit card debt, can hinder your ability to achieve FIRE. Focus on paying off debt as quickly as possible.
- Save aggressively: Aim to save at least 50% of your income towards achieving FIRE.
- Invest in real estate: Real estate can provide passive income through rental income and appreciation over time.
- Cut unnecessary expenses: Re-evaluate your expenses and cut out unnecessary expenses that don’t align with your FIRE goals.
- Automate savings: Set up automatic transfers from your paycheck to your savings and investment accounts to ensure you’re consistently saving.
- Focus on long-term gains: Avoid chasing short-term gains and instead focus on long-term strategies that align with your FIRE goals.
- Continuously educate yourself: Stay informed about personal finance and investing strategies to help you achieve FIRE faster.
You also need to evaluate the big risks that you may face during or on the road to retirement. Retirement planning is always based on many assumptions, and one needs to be aware of them.
For instance, we have seen high inflation during the last one year. This can happen at any point. Another roadblock you may face is managing a bear market. Consulting financial advisors before making any investment decisions is always advisable; they can also help manage such events.
Remember, achieving FIRE is not a sprint but a marathon. It takes time, effort, and patience, but the end result is worth it. So, start your journey to financial freedom today, and make your dreams a reality!
“Mutual funds are subject to market risks. Read all scheme-related documents carefully.”
K S Rao Head - Investor Education & Distribution Development, Aditya Birla Sun Life Asset Management Company Ltd