Have any guesses? I know a lot of things can come to mind on what F.I.R.E stands for and to be honest it was only a few years ago that 1) I realized there was a so called movement, and 2) that I found out exactly what F.I.R.E meant.
Financial Independence Retire Early!
Let me tell you, when I first heard those words I thought well, I have been aiming towards that since I started my career. My plan once I entered the work force in a highly stressed environment was 55 and out and I had already started to work towards that.
Until…I started to dig into what F.I.R.E really meant and reading through case studies. As I kept digging and digging I found more and more examples of people retiring in their 20’s, 30’s and 40’s. I was getting excited and discouraged at the same time thinking, “Why didn’t I think of this any sooner!”
What we are usually taught about adulthood tends to be the following sequence: go to school, get a job, work hard, save money, work until we are in our 60’s, then retire and enjoy the rest of our life. The problem I have seen with this sequence is that all too often by the time people get to that stage in their life, in their 60’s, they don’t have the energy to do what they want, they haven’t saved enough to do what they really want, or worse, the years they thought they had left are often cut way too short.
Let’s dig into F.I.R.E to really understand the concept so many youngsters are starting to put into action.
F – Financial
There are many facets to this word that can help you reach your goals financially.
- Expenses – understanding what your expenses currently are and what they will be in retirement (at any age) is the key to unlocking your path on when and how you can retire. You want to take a deep dive into your expenses, and the sooner you reduce your expenses the more you can save earlier which helps get you get closer to your goal whatever that may be.
- Budgeting – from all of the case studies that I have seen for those that retire early (or quite frankly retire at any point), having a budget set in place is the key to being successful. When you have a good idea of what your monthly or annual expenses are well ahead of time, and create a budget that you stick to, this helps to ensure you stay on track. In my opinion, your budget should always account for a little of unexpected as we all know life does happen.
- Savings – depending on when you plan to retire, it will take a substantial amount of savings in order to ensure that the funds are there to support you throughout your retirement no matter how long it is. You never want to plan to spend your last penny because none of us really know when our last day on earth will be.
I – Independence
As I am sure you can tell, each letter in this acronym relate to the other. Independence can have a few different meanings, that all relate to finances.
- Debt Free – You are not dependent on financial institutions floating you debt for your lifestyle whether that is a loan, or a credit card. The two largest expenses that are related to debt tend to be your home and car payments. When those payments don’t exist because you have paid them off, that makes a huge dent in your required monthly payments. This means your expenses are lower and less of the budget you created is going towards paying for some of the basic needs. This also means that once these are paid off, if you are not yet retired, that is more you can add to savings to plan for retirement. That’s not to say there won’t be any expenses related to homes or cars, but not having to pay for the principal of it anymore makes a huge difference.
- Freedom from the Grind – this is a fancy way of saying not relying on a job or employer to get you where you want to be. All too often I hear about people being in a job that they can’t stand because they need the money. In a typical 40 hour work week, that accounts for about 24% of your hours in a week and no one wants to be miserable or not enjoy that much of their life. Saving, budgeting and reaching those financial goals allows you the freedom to make more choices. Those choices can be looking for new work, volunteering, retiring, or anything in between. Being financially secure just gives you more freedom to make the choices that are right for you. I am not saying it might not be scary at times to make those decisions, but they feel more satisfying when you can.
R – Retire
Retirement can mean completely different things for different people.
- Retire from a typical 9-5 day job. Maybe you still want to work, but want to work part time instead of full time. Maybe your current position is very stressful and you want something that is more low key.
- Work more on your hobbies or start new ones. If you are anything like me, I tend to put a lot of the fun little things I want to pursue to the bottom of my list because of work and raising a family. Maybe you want to go back to scrapbooking, play piano again, learn a new recipe – the list could be endless. If you aren’t working a typical 9-5, 40 hour work week, you will have more time to add some of these hobbies into your schedule.
- Volunteer – giving back is always good not only for the community, but for the heart. This can again look very different for each person, but can be giving your time at a shelter, church or other non-profit. Giving your time to family or friends. For those that may need a routine schedule, these commitments can even help with that in retirement.
- Completely Retire and Never Have to Work Again – This again looks different for every person, but it might be as simple as walking away from any type of work and laying on a beach all day drinking pina coladas!
E – Early
The definition of early again can be different for everyone, but ultimately it means to retire earlier than the standards of retiring in your 60’s.
- Having More Years in Retirement than working years. The current average lifespan these days is in the early to mid-eighties (with women usually living longer). If you retire at 60 that means you could have 20+ years in retirement. If you retire at 40, that is a lot more years in retirement than in your working years. Remember the key to this comes back to the finance part of reducing expenses, sticking to a budget, and saving substantial amounts of money to cover your budget.
- You can define your Early – the earlier you start to plan, the earlier you can retire. Knowing that it is never too late to change your course.
Your F.I.R.E. movement will be different and unique than the person next door. Now the fun part comes…planning and implementing your ideal F.I.R.E plan. It’s all about taking action, setting goals, and working towards them.