When I graduated from university, I was an eager young professional who aspired to climb up the corporate ladder. But when I hit glass ceilings, office politics, and experienced workplace burnout, I knew that if I wanted to be free (financially, but also emotionally), I had to become my own boss.
My ‘aha moment’ was when I learned the difference between making active income and passive income. So, early in my career, I explored ways to earn more money and save as much as possible. That way, I could eventually walk away from my corporate job. Little did I know, I was following the Financial Independence, Retire Early (FIRE) movement. Follow along as I explain the steps I’ve taken to achieve FIRE.
What is the Financial Independence, Retire Early movement?
The basic FIRE formula is to save 25 times your annual expenses. When you reach this target, you can withdraw 4% every year to fund your lifestyle. For example, if you want $60,000 a year to spend, you’ll need to save $1.5 million ($60,000 x 25). While this can be a daunting goal to work toward, all you have to do is strive to increase your earnings and keep your expenses low. Then, you can boost your savings and invest your money to hit your FIRE number.
If you’re curious to see how close you are to achieving your FIRE number, you can use the Coast Fire Calculator to estimate what you need to do.
Why do people pursue FIRE?
Those who choose to pursue FIRE do it for their own personal reasons. Some want to pursue their own passions, avoid overconsumption, or have an exit strategy so they can have a work-optional life. Others simply want to travel extensively or have the peace of mind that their loved ones will be taken care of financially.
Why is there so much criticism around FI/RE?
Before I begin, let’s be real here. FIRE is a polarizing topic. It seems like people are either for or against it. Some people may perceive it as living too frugally or making extreme sacrifices. Despite this criticism, I’m not an extreme frugalist, and I still enjoy a comfortable living.
Others believe it’s unattainable since the traditional retirement age is 65 in the United States. As such, they find it difficult to grasp the idea of retiring earlier because they face financial strains with daily living expenses.
I realize it’s not for everyone. In reality, it’s ideal for those who can achieve higher incomes and prefer minimalist lifestyles. No matter your perspective, I hope that as I share my experience, it’ll inspire you to explore the concept with an open mind.
Attend Camp Mustache
Several years ago, my family attended Camp Mustache. It was a great way to connect with like-minded individuals and share stories of our experiences. People came from all walks of life and were at different stages of their journey. It opened my eyes to the possibility of achieving FI/RE one day. We learned how people were aiming for different types of FIRE, such as Barista FIRE, Lean FIRE, and Fat FIRE. There are FIRE groups in the U.S., and they host events year-round. You can start by checking out ChooseFI and adding Mr. Money Mustache’s shockingly simple math behind early retirement to your reading list. There’s also an amazing documentary called “Playing With FIRE” that’s worth watching.
How I Earn Multiple Income Streams
Based on Mr. Money Mustache’s formula, here are the ways I’m increasing my income. Many Americans simply rely on income from their job. However, the average millionaire has seven income streams, according to Yahoo Finance. Here are the different ways I’m earning multiple streams of income.
Previously, when I worked at a corporate job, I had a side hustle. When my side hustle started generating consistent income that could replace my 9-to-5 job, I left my employer to run my business full-time. However, this took several years of consistent hard work. In my business, I don’t just rely on one revenue stream. In fact, I earn income through freelance writing and editing, consulting work, speaking engagements, and book sales.
As a DIY investor, I invest in the stock market and earn dividends. My wealth grows steadily through the diversified ETFs in my portfolio. Additionally, my husband and I own several rental properties and rent them to long-term tenants, generating monthly rental income. Eventually, when we sell each property, we will make a profit from the property appreciation. Lastly, I have multiple savings accounts that earn 2.5% interest. So, this is a passive way to earn money.
Ways I Reduce My Expenses
If you’re serious about achieving FI/RE, then you must avoid lifestyle inflation. Otherwise, if your expenses are in lockstep with your earnings, you won’t be better off financially. The key is to keep your expenses steady over time.
That means regularly reviewing utilities, subscriptions, bills, and memberships to renegotiate prices or go with a competitor that offers a better deal. For example, this year my husband and I switched internet providers to save money. For our cell phone bills, I found a promotion that included extra data at a lower price than what I was previously paying. While some of our friends chose luxury cars, we have always opted for safe and reliable cars that last for many years.
Increase My Savings Rate
Naturally, when you boost your earnings and keep your expenses stable, you’ll be able to increase your savings percentage over time. You can put your savings into a high-yield savings account and an emergency savings fund for near-term goals. My savings accounts earn 2.5% interest. Don’t forget to automate your routine transactions, such as directing portions of your paycheck towards different savings goals.
To accelerate your net worth, you’ll need to open and contribute to different investment accounts, such as a 401(k), Individual Retirement Account (IRA), or Health Savings Account (HSA). Take advantage of tax-advantaged accounts and any employer matching programs available to you. Investing your money in the stock market based on your risk tolerance and time horizon could help you build your wealth and reach FIRE faster.
Explore New Hobbies
Beyond reaching a target number, there are other aspects to consider when achieving FI/RE. Plus, it can be anticlimactic to reach your FIRE number, quit your job, and realize you haven’t laid the foundation to adjust to your new lifestyle. That’s probably why many people think retiring early can lead to boredom, as their days are no longer tied to a job.
However, when I read stories of retirees with fulfilling lives, I see them immersing themselves in all sorts of activities. For me, I’ve taken pottery classes, acrylic painting lessons, and played recreational pickleball. As a parent, I devote so much time to my son and his development. But I’ve made an effort to carve out time for myself to explore new activities and learn new skills. I’ve been fortunate to attend weekday classes because I have control over my schedule.
Overall, I still enjoy the work I do. So, when my husband and I reach our FIRE number, I’ll have the option to choose the work I take on. And I’ll have more freedom to spend more time with friends and family, travel the world, and give back to my community.
Our articles provide information purely for educational purposes and do not constitute financial, tax or investment advice. You should always consult with professionals like licensed financial advisors or accountants before making any decisions. We aim to provide up-to-date and accurate information, but we make no guarantees regarding the accuracy or completeness of any content. All our examples are provided for illustrative purposes and may not reflect your personal results. We are not liable for any losses or damages arising from your reliance on the information provided.
Sources:
- https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
- https://www.investopedia.com/terms/f/financial-independence-retire-early-fire.asp
- https://www.pocketsmith.com/blog/how-do-you-achieve-fire/
- https://www.troweprice.com/personal-investing/resources/insights/6-steps-to-achieve-financial-independence-and-retire-early.html
- https://networthify.com/calculator/earlyretirement?income=50000&initialBalance=0&expenses=20000&annualPct=5&withdrawalRate=4
- https://www.talismanwealthadvisors.com/the-problem-with-fire-why-financial-independence-retire-early-isn-t-the-freedom-you-think-it-is
- https://www.theglobeandmail.com/investing/personal-finance/retirement/article-fire-movement-workforce-summer-camp/
- https://www.playingwithfire.co/the-documentary
