Retirement can often feel like a distant dream. The thought of waiting until age 65 or 70 to “enjoy life” can be daunting, especially if it means being too old or tired to make the most of it. But what if there were a way to retire in your 40s—or even earlier? For many, achieving financial freedom at a young age may sound like a fantasy. However, this dream is becoming a reality for a growing number of people who are part of the FIRE movement—Financial Independence, Retire Early. But what does it really take to achieve FIRE, and is it the right path for you?
What is the FIRE?
The FIRE movement is a financial strategy and lifestyle aimed at achieving financial independence and retiring significantly earlier than the traditional retirement age. The core principles of FIRE include extreme saving and investing, often saving 50-70 per cent of one’s income, and building enough wealth to live off the returns from investments. The idea is to accumulate 25 to 30 times your annual expenses, allowing you to live off a safe withdrawal rate of about four per cent per year without depleting your funds.
Here are five steps required to achieve FIRE and live life on your terms sooner rather than later:
Calculate your FI number: Your Financial Independence (FI) number is the amount of money you need to have invested to cover your living expenses indefinitely. A common rule of thumb is to multiply your annual expenses by 25. This calculation assumes a four per cent safe withdrawal rate, meaning you can withdraw four per cent of your portfolio each year without running out of money.Track your spending and cut costs: Begin by taking a close look at your current spending habits. Identify areas where you can cut costs, such as reducing discretionary spending, downsizing your living situation, or eliminating debt. The goal is to maximize your savings rate, allowing you to invest more aggressively toward your FI number.Increase your income: Boosting your income can accelerate your path to financial independence. Look for opportunities to earn more through side hustles, asking for raises, or exploring higher-paying job opportunities. The more you increase your earnings while maintaining a frugal lifestyle, the faster you’ll reach your FI number.Invest for growth: Focus on investing in assets that will grow over time, such as stocks, bonds, real estate, or other passive income streams. Diversify your investments to minimize risk and ensure steady growth. Starting to invest early and letting compound interest work in your favour is crucial for achieving FIRE.Stay disciplined and focused: Achieving FIRE requires a high level of discipline, patience, and a willingness to make sacrifices. Stay committed to your goals, avoid lifestyle inflation, and regularly review your financial plan to ensure you’re on track.
While the FIRE movement offers an appealing path to financial independence, it’s not for everyone. It requires significant lifestyle changes and a willingness to forego certain comforts in the short term for long-term gains. However, if you’re motivated to achieve financial freedom and are willing to put in the effort, FIRE can be a transformative goal.
So, is FIRE right for you? With a solid plan, a commitment to saving and investing, and a focus on your financial goals, you can create the life you’ve always wanted—on your terms.
Want to dive deeper into this and other fascinating topics on building wealth? Tune in to Money Classroom every Wednesday at 7 PM JA time / 8 PM US & Canada on YouTube for more engaging discussions about how to make more money with investing! Watch the full episode of this discussion on YouTube!
Keisha Bailey is a financial expert who teaches people how to earn passive income, create wealth and reclaim time & reach financial freedom by investing. Keisha works with investors to create highly profitable portfolios so they can build wealth faster. If you are looking to learn how to level up your money, she can be reached at [email protected].
