One thing that everyone is trying to achieve now is financial freedom. Today, retiring early is not just a fancy concept but a fundamental financial goal. However, before planning your early retirement, you must understand FIRE thoroughly. FIRE or Financial Independence and Retire Early is an American concept where after a certain age (30-50), you stop working actively and live on your passive income. The money you receive from the assets like mutual funds, stocks, fixed deposits, real estate etc., is called passive income.
There are a few things that you need to consider before retiring early. Such as, no longer depending on your monthly salary to pay all your living expenses, or the money you invested or saved should be at least 25-30 times your annual expense.
As fancy as it may seem, retiring completely is not an option. There is still not a sole case anywhere in the world that exemplifies someone who lived their whole life without doing anything after retiring early at 35-40 years.
Then what exactly does retiring early mean? Well, it means that you are not working anymore for the money. You are just doing what you love; it may be anything from pursuing your hobby and making money out of it to having a part-time job like teaching, etc.
So, how do you achieve financial independence and retire early? Here is your answer
Target a High Savings Rate
One of the crucial contributors to attaining financial freedom is your savings. The more you save, the earlier you can retire. According to TheMoneyHabit.org, if you want to retire early tomorrow, you must save around 45-55% of your monthly income today. The mathematics is simple if you save 20-25%, it will take additional three years to save for one year’s expenses. Alternatively, if you save 50–55 per cent, it will only take one extra year to save up for one year’s expenses.
Reduce Your Expenses
It is seemingly obvious that in order to save more, you must reduce your expenditure and live frugally. There are many ways to cut your expenses short. Few notables’ options are avoiding ordering food online regularly or selecting only one – either a cable or internet bill. You might start doing yoga at home or walking or jogging in the nearby parks, which will reduce your gym expenses, etc.
Grow Your Income
Retiring early depends not only on how much money you are saving but also on how much you are earning because the more you earn, the more you will save. Therefore, try to increase the sources of your income. For example, you can take up some weekend teaching jobs, or you can do some freelancing as well.
Get Rid of All Your Debts
The money you owe is an immense drain on your savings. Today, a lot of people are living life on bills. Then to pay all those bills, you need a huge chunk of your income. In the end, there is nothing left to save. Therefore, pay off all your debts and try not to pile up new ones again.
Calculate How Much Money You Will Need After You Retire
Before starting to reduce your expenses and save, you need to figure out how much money you will need every year after you retire. According to many FIRE experts, you must at least have 25 times your annual expense saved before retiring. However, many experts suggest that you must save around 40X.
Today in this unprecedented life, financial freedom is essential. You cannot just rely on your paycheques at 40-45 years of age to full fill all your needs. Set a goal to put your life on F.I.R.E. – Financial Freedom and Retiring Early.