Why Everyone Should Start A FIRE Journey
Embarking on a FIRE (Financial Independence, Retire Early) journey isn’t just for those who want to retire early; it’s for everyone. While the premise may sound bold, I believe my reasons are pretty compelling. As a reader, I want you to think long and hard about the questions I will pose throughout this post and see where your answers take you.
Why do you work?
First up, “Why do you work?” For most, I think the answer is money. As secondary reasons, it might be because you want to be a good role model or that you want to do something productive in the world. To get clarity on your answer, ask yourself if you would quit your job if you won the lottery? If the answer is yes, I think you work for money. But if you have to work for money and can’t retire early, you are bound to your employer and the stresses your job may bring you.
Employment is highly dependent on keeping your skills relevant over the years, staying educated and, most importantly, your health. The last one is key. What if you couldn’t work the same number of hours as you used to or if, for some reason, you suddenly became unable to work anymore? Well, you’d be forced to stop working. And it’s this reason why I think everyone should always strive to achieve financial independence sooner rather than later. You never know what life throws your way, and you definitely can’t control biology (at least not yet).
Speaking of biology, is your job stressful? Stress is one of the most harmful things to your wellbeing. If you could retire from your job or switch to a less stressful career, would you? “Health over wealth” is how I look at it.
Will you retire on your terms?
Just because you’re on a FIRE journey doesn’t mean you have to retire early. To me, FIRE is mostly about the FI (financial independence) part; the RE (retire early) part is optional. And once you achieve financial independence, I believe you will have true peace of mind knowing that you and your family will be taken care of for the rest of your lives.
We only have one chance at life, and time in this lifetime is finite. Having the ability to retire early gives you the freedom to commit your time to the things in life that matter most to you. That obviously includes spending however much time you want with your loved ones. It also enables you to take on a second career you’ve dreamed of having, or maybe it’s getting into philanthropy (that’s my goal). What would you do with your time if you no longer had to worry about money?
Another reason to begin a FIRE journey is to track your wealth as early as possible and the progress you’re making over the years. If you don’t have a goal and know how you’re progressing towards that goal over time, how can you possibly know if you’ll be able to retire? At some point in your life, you will be forced to find out, whether you find out on your own terms or you’re forced to find out is up to you. Personally, I prefer to determine my own future as much as possible.
Embarking on a successful FIRE journey
Hopefully, I’ve made some compelling reasons for you to at least consider FIRE. If you’re interested in learning how to get started on your FIRE journey, you first need to learn what’s necessary to build a solid foundation.
Get educated. You need to invest in your knowledge. Instead of spending your free time on social media, video games, or watching videos, use your time to learn about personal finances. As I will outline below, in order to have a successful FIRE journey, it’s crucial to know how to budget, how to invest, how your income and investments are taxed (at least at a very high level), the types of investments and investment accounts available to you, and how to calculate your FIRE number.
Know your financial situation. You need to know all your income streams -- all the types of bank accounts, investment accounts, debts, credit cards, credit score, bills, mortgages, etc. you have. That way, you can calculate your net worth. That is, your total assets minus total liabilities. Knowing your net worth is a huge step in determining your FIRE number.
Budget. If you know how much you make and know how much you spend every month/year, you can roughly determine what a budget looks like for your household. Tracking that over time will help inform you if you overspend in any particular category (e.g. eating out, traveling, subscriptions). Budgeting keeps you on track to hit your FIRE number.
Invest. This one is about taking your net income minus your expenses and investing the difference. By sticking to a budget and keeping it relatively flat (even if you get raises!), you can invest that extra income. By doing this every paycheck or every month, you invest as much as you can as often and as early as possible (see automatic investing). If you just let your cash sit in a bank account and earn a fraction of a percent, with inflation rising at a rate of 2% annually, you’re technically losing money over time. So it’s very important to invest it elsewhere where you can potentially earn 8%+ on average per year. Stocks and real estate investing are my two favorites! Lastly, there are no shortcuts in life, and there certainly is no such thing as getting rich quick. So be patient with your investments and focus on your long-term investing strategy. For example, when my investments lose value in the short-term, I see it as an opportunity to invest even more at a more favorable price point. Short-term dips are opportunities, not losses, and it’s important to keep skin in the game for as long as possible.
Determine your FIRE number. When you have a rough idea of what your net worth, what your annual expenses are, and how much you can invest every month/year, you can project how much money you will need to attain financial freedom. Determining your FIRE number is difficult and likely many years away, so it’s important to keep revisiting your number over time as expenses change. Many people in the FIRE community use a rule-of-thumb by taking your annual retirement expenses and multiplying it by 25.
FIRE number = annual retirement expenses x 25
Done differently, FIRE number = annual retirement expenses / 4%, where 4% = what’s called a Safe Withdrawal Rate (SWR). SWR is a percentage of your nest egg you can safely withdraw every year.
Personally, I use a 2% SWR. My annual expenses top out at $180K. So using that formula, I get: $180,000 / 2% = $9,000,000. To be even more conservative, I rounded mine up to a $10M FIRE number.
Track progress regularly. It’s important to regularly check on your expenses. Are you staying under budget, or are you exceeding certain categories? Why? Do you need to cut back or increase your budget? You should also track your net worth to see how you’re progressing towards your FIRE goal over the months and years. Do you need to find ways to make more money to reach your goal on time? Do you need to cut back your expenses to reach your goal on time? Do you need to reduce or increase your FIRE number due to change in annual expenses?
Everyone’s road to FIRE is unique and personal. That’s what puts the “personal” in “personal finance.” Your journey will have its ups and downs. But if you stay the course, I’m confident your road to FIRE will be successful.
Where can you learn more?
If you’re looking for more information, there are countless resources out there! Be sure to scour the internet for reliable content and, as always, feel free to contact me here or on Instagram if you have any questions at all.
So tell me, have I convinced you to start your FIRE journey yet? If not, I’d love to hear your reasons for not wanting to start one by sharing below.
