Using the FIRE Movement to Gain Financial Independence

Many people dream of the day they can leave work behind and start pursuing their lifelong dreams. But for most people, you will need to achieve financial stability and independence before you can leave behind your day-to-day job in exchange for a more fulfilling path. This is where the increasingly popular Financial Independence - Retire Early (FIRE) movement comes in. 

The basis of the FIRE movement is quite simple: Save and aggressively invest a large percentage of your income (somewhere from 50 to 75%) to gain financial independence and retire early. While saving this much may be extremely difficult (especially in our community), there are principles within the FIRE movement that can help everyone on the path to better financial health. 

Have a Plan 

Whether you want to retire at age 45 or age 70, you should have a good idea of how much you will need to save for you to live comfortably. Chat with a financial professional to figure out what your savings goal is according to your desired retirement age, current income, savings, and estimated monthly expenses after retirement. With a savings goal in mind, you can calculate how much you will need to save each month to retire at your desired age.

Cut Down Debt 

One of the best ways to start saving money is by eliminating debt as quickly as possible. Whether you have student loans, credit cards or other debts. It is hard to save and invest when a portion of your income is going towards debt every month. Debt will only grow the longer you put it off, so focus your financial resources on eliminating your debts first and foremost. 

It is also important to evaluate debts that you consider essential, like your mortgage or auto loan to see if there’s room to cut back. One option is to refinance to reduce monthly payments. If you are serious about saving, you may even choose to move to a more remote area with a lower cost of living overall.

Evaluate Your Expenses

One key component of the FIRE movement is cutting down drastically on spending. By eliminating unnecessary expenses, you will be in a better position to save and invest towards financial independence. Take a close look at your expenses over the past few months and evaluate where you may be able to trim your spending; from going out to eat less to cancelling a subscription service you never use. 

FIRE movement followers are also careful to avoid lifestyle creep. Instead of spending more money when they get a raise, promotion, or bonus, they funnel the extra income into their savings. One way to avoid lifestyle creep is to simply set a budgetary goal of living within or below your means. You will ensure that any extra funds will be funneled into savings while also avoiding debt from overspending. 

Start Investing 

Passive income is key for followers of the FIRE movement. One of the best ways to have your money work for you is by investing it. You can do this through traditional retirement accounts, like a 401(k) or an IRA, but if early retirement is your goal you may want to look into other investment options to be sure that you can withdraw from your accounts without penalties. It is generally a good idea to diversify your investments, so you may want to consider putting your dollars in an exchange-traded fund or mutual fund. 

You may also want to consider strategies to generate extra income to go into your investment accounts. This may involve monetizing a hobby such as crafting or blogging. If you have a website or other online platform, you can take advantage of that space to make a passive income with affiliate links, ads, or bespoke digital content. 

It is important to remember that the FIRE movement is not right for everyone. If you are interested in overhauling the way you budget and save, be sure to chat with a financial professional to set up the right plan for your needs and lifestyle.