Financially Independent – The goal of being financially independent is to create a lifestyle focused on passively earning income while minimizing expenses. There are many objectives you can use to achieve being financially independent and here are some:
- Generate passive income – You can do this by investing and earning interest and dividends. Renting out real-estate properties is a very common method. You can also do this by having a side job like blogging. The main objective is to create multiple “streams” of passive income so you minimize risks of losing a stream.
- Minimizing expenses – The most common mistake people make is losing control of their expenses or living beyond their means. Minimizing expenses allows you to make the most out of your income and to save more. This means staying away from debt, making smart purchases, and being aware of how much you’re willing to spend on entertainment and services
- Increase your savings rate – By using your primary income to generate passive income and minimize expenses, you should be able to increase your savings rate. Unfortunately, many people struggle to save at least 10%, when we should be striving for a 25-50% savings rate (or higher if possible). In an age of seemingly infinite resources and excessive consumerism, people are struggling to save any money.
Retired Early – Defining “early” is a personal goal. There is a huge movement to break away from retiring at 60 or later, and having very limited time to enjoy your retirement years. Retiring early also doesn’t mean a specific retirement savings goal either. For example, some people just want one million dollars without thinking what the $1M will provide or how long it will last in retirement. The objective of working towards retiring early involves identifying how much you’ll need to generate by the time you retire. You calculate how much retiring will cost you annually and then figure out much you’ll need to retire at the specified time you’d like to retire.
- Identify WHEN and HOW you’d like to retire – A common retirement goal for military members is to retire from the military at ~45 within the same lifestyle they were living. When military members retire after 20 years of service, we receive 50% of our basic pay plus an additional 2.5% for each year after that. In the beginning of 2018, the retirement system will change significantly. The main problem with that goal is that BAH (Housing Allowance) is not part of our retirement, so military members actually only retire with 35% of their paycheck. They’d need to generate an additional 65% of that income through investing and passive-income strategies in only about 20 years—a difficult task. A generic FIRE goal is to retire at 55 with a lifestyle slightly less than having full-time jobs. It’s recommended that your expenses (living, traveling, hobbies) only make up 80% or less of pre-retirement expenses.
- Your savings rate is within your control – The easiest ways to retire early are to have a high savings rate and live a retired lifestyle within your means. It would be difficult to retire early saving only 10% of your income. Conversely, one could retire early within an aggressive savings rate of 50% or more. Additionally, you could also live a life in retirement which requires very little income. I know one military family that will only need $25K a year for their retirement plans. The military member’s retirement income will fully cover the cost of their simple retirement.
The people most interested in FIRE tend to be minimalists. They have no interest in excessive consumerism or working until they’re old. They want to enjoy life earlier and without the distractions of excessive TV consumption, celebrity worship, and the exhaustion of a hectic life. Is this something that interests you?
