FIRE, the goal we should be striving for
The goal, in my opinion, that we should be striving for is called FIRE. FIRE stands for financial freedom, retire early. It sounds a lot like what it is, people attempting to save as much as they can in order to gain financial freedom and retire early – or just gain the financial freedom if they like their job.
There’s many types of FIRE, one type is leanFIRE, leanFIRE is typically reaching financial independence with household expenses being under 40k or individual expenses being under 20k. The idea with LeanFire is that you will have enough passive income streams from investments to pay for all of your expenses and you will be able to choose if you continue working or not. These household expenses include things like food, utilities, housing, healthcare, insurance, taxes, etc. Anything you need money for is an expense.
There’s another type of FIRE called FATFIRE and FATFIRE is typically which typically means saving for retirement but also choosing to not be frugal during the accumulation of savings phase or after retirement either. There’s nothing wrong with either type of FIRE. Lean is obviously doable for everyone, while Fat is not doable for some people and depends on the household income.
If you’re a surgeon making $300,000 every year you can obviously afford to FATFIRE but if you’re making $45,000 every year you can likely only afford to LeanFire.
FIRE seems interesting, but why?
There are a great number of reasons to gain financial independence, for me personally, I like the security it brings but enjoy my job enough that I likely won’t quit even if I reach my FIRE “number.” But other reasons for people maybe that they hate working and want to retire. Some people want to spend more time around their friends and family during retirement. Others wish to help around their communities more or spend more time traveling with their partners. While, still others, want to be able to take a career in which they can do greater good in the world and not have to worry about pay.
But finally, the most important question is how?
Well, the general idea is pretty straight forward, earn income at your day job, spend less than you earn, and invest the difference. You should be striving to purchase things of value and then live off of the value that is produced by those things, ideally these things produce cashflow for you. The two most common ways of “FIREing” are equities and bonds (normal financial market investing) and the purchasing of real estate/rentals for cash flow. Real estate and rental properties produce cash flow from rent. While, stocks and bonds produce cash flow from capital gains, interest, and dividends. You can live off the value produced from them and have income streams which will sustain you during your early retirement.
The ultimate goal for a fire number depends on how frugally you wish to live in retirement. But the general numbers to shoot for are about one million dollars. With one million dollars in investments, you can expect anywhere between 5-7% returns and a typical safe withdraw rate is around 2-4% meaning you can live on $20,000-$40,000 for the rest of your life without hardly any worry of going broke in retirement. But this number varies considerably depending upon your life style and how frugally you wish to retire.
For me, I’m shooting for one million dollars right now. Unfortunately, I’m far from that goal, but I’ll get there eventually. For now, I’m using M1 Finance to build my portfolio and investing in broad market index funds. But whatever investment platform you use, it’s better to get started today, rather than waiting. So put that money to work!
Have you FIREd already? Or are you working towards it now? Tell me about it below!
Note: the m1 referral link gives the reader $10 extra dollars to invest with if they choose to fund a taxable with $100 dollars within 30 days of opening the account or fund an IRA with $500 within 30 days of opening an account. The author of this article will receive a $10 dollar compensation as a result of the reader opening an account. The compensation for both parties occurs 30 days after the deposit occurs and assumes the full amount is retained in the account until the end of 30 days from the deposit day.
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