Is Car Fuel Easy to Catch on Fire
When it comes to retirement planning, many people focus on ensuring they have enough money to leave the workforce at full retirement age. For some, that means reaching age 59 ½ — that's when you can start withdrawing from IRAs without facing a financial penalty. For others, that could involve waiting for full Social Security benefits to kick in at age 66 or 67.
However, there aren't any rules that require you to wait that long to retire — only rules that determine when you can start drawing some types of retirement benefits. In fact, followers of the FIRE movement actively strive to retire much earlier, if possible. If you're wondering what steps you can take to retire from the workforce sooner rather than later, here's what you need to know about FIRE and how to start working towards it today.
FIRE stands for "Financial Independence, Retire Early." It's a personal finance movement that individuals can join to make their early retirement goals a reality. As with most financial strategies, it operates on some core tenets that give followers a general framework to increase their odds of success.
In most cases, people who are dedicated to the FIRE movement focus on saving and investing aggressively to set aside enough money to exit the workforce – or, at least, scale back dramatically on working – in their 30s or 40s. It isn't uncommon for them to save at least half of their income, though some even commit 75% to make FIRE happen as quickly as possible.
However, you can still use FIRE even if you don't plan to retire that early or can't set aside that much income. Many of the primary principles are solid recommendations for anyone who wants to improve their financial situation. Plus, it could make retiring earlier than you initially planned possible or make a traditional retirement far more comfortable.
1. Define Your Ideal Retirement
In many cases, the first step everyone who joins the FIRE movement takes is to get a clear idea of their retirement goals, dreams and needs. After all, you won't know if you've succeeded if you don't have a clear target to hit.
Spend some time reflecting on your ideal retirement. Where do you live? What's your lifestyle like? How are you spending your time? How satisfying do you find it? It's also wise to consider whether your retirement means a full exit from the workforce or something else.
Many people who embrace FIRE don't necessarily plan to stop working completely once they reach financial independence. Instead, the strategy simply allows them to pursue a professional dream without focusing mainly on generating income. As a result, some FIRE followers choose to work part-time. Others start businesses.
Ultimately, you want to spend time defining your ideal retirement. That ensures you have a clear target for your efforts. It also reminds you why you're making tough choices and what you have to look forward to once you reach your goal.
2. Reduce Your Expenses as Much as Possible
The FIRE movement doesn't focus solely on saving and investing. Instead, cost-cutting plays an incredibly big role in the FIRE equation. By reducing your expenses as much as possible, you free up more cash to put towards savings and investments. Plus, you may find that you need less money to retire early; through FIRE, you might learn to live comfortably on a modest budget.
Ideally, you want to begin by taking a close look at your expenses and spending habits. Identify anything that you're able to cut out or reduce and won't miss. Then, start eliminating expenses you're willing to give up.
At first, slashing unnecessary spending can feel like a major sacrifice. However, it's important to remember what you get in the end, which can motivate you. Additionally, keep in mind that every reduction helps as long as you redirect that money wisely. Even if you can't cut out as much spending as you'd like, don't use that as a reason to do nothing — every dollar counts.
3. Aggressively Save and Invest
As mentioned above, saving and investing aggressively is a core part of the FIRE movement. Many people who dedicate themselves to the idea at an early age aim to set aside 50–75% of their income each month. That might not be practical for you, and that's okay. But, adopting the mindset of an aggressive saver and setting aside as much as possible gets you moving in the right direction.
Usually, you want to start by creating an emergency fund and setting aside three to six months' worth of living expenses. That gives you a cash buffer against the unexpected so you don't have to turn to debt or cash out any investments to cover the cost of emergencies.
After that, it's time for investing. Along with funding a retirement account (or two, if you have access to a 401(k) and an IRA), you'll usually need a brokerage account to support additional investing. You could also consider making real estate investments; rental properties could turn into a solid source of ongoing income.
Essentially, you want to seize opportunities to ensure your money is working for you in some capacity. That allows you to grow wealth so you can retire sooner and live comfortably without a traditional income.
4. Boost Your Income
FIRE is partially about saving as much money as possible, so having more cash to set aside is a goal worth pursuing. By harnessing extra income streams early, you generate more money that you can invest. That allows you to reach your financial goals faster.
There are several paths you can take to make this happen. Accelerating your career by acquiring new skills and seeking promotions should be part of the equation. You may want to start a side hustle to earn more money. You can even get started by selling old items you don't need anymore; while it probably isn't a sustainable option, it can help you build a great starter nest egg.
5. Put the Right Protections in Place
Even if you get a significant sum set aside, unexpected events can derail your finances. Make sure you have the right protections in place. For example, health, temporary disability, life and other kinds of insurance can be critical parts of the equation.
By setting them up early, you can potentially pay less than you would if you set up coverage later. Plus, if the unexpected happens, you'll get some financial help. That makes it easier to stay on target with your financial goals.
Ultimately, FIRE is a journey. By getting on the road now, even if you go slowly, you'll start making progress. Then, at a minimum, you'll be far more likely to have a comfortable retirement — potentially a bit earlier than you expected.
Source: https://www.askmoney.com/investing/ways-to-retire-early?utm_content=params%3Ao%3D1465803%26ad%3DdirN%26qo%3DserpIndex&ueid=110a240e-1df8-4084-86db-840decb27c2f
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