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Tips to Conquer FIRE: Financial Independence, Retire Early

4 min read • December 18, 2018
30 sec brief

FIRE followers start with a goal of saving up the equivalent of 25 times their annual income needs. Watching your latte budget isn’t going to get you there. You need a full-on aggressive FIRE action plan. We share ours below.

The FIRE movement has broad emotional appeal. It sure sounds enticing to build enough Financial Independence that you could afford to Retire Early. But the logistics are where plenty of people get sidetracked. Retiring early (or switching to work that feeds your heart even if it doesn’t pay as well) requires an extreme commitment to save more – A. Lot. More. — today and spend a lot less.

As a general target, FIRE followers start with a goal of saving up the equivalent of 25 times their annual income needs. Watching your latte budget isn’t going to get you there. You need a full-on aggressive FIRE action plan.

Some tips to conquer FIRE

Become a Budgeting Demon. Saving 20% to 50% of your income each year isn’t going to happen without an aggressive bit of planning. This is where tracking every penny of income and outgo becomes so important. While other people may see budgeting as some sort of drudge work, FIRE followers get a charge out of saving. One of your most valuable moves is to have a positive frame of mind to save, save, save. You are not denying yourself things today, you are on a path to giving yourself exactly what you want in life.

Write it Down. Your budget will likely be a spreadsheet or app. But beyond the actual nitty gritty of the numbers, you also want to create a written manifesto for why you are doing this.  It might be a few sentences, or a few pages that spells out your intentions for what your life will look like once you have become FI and can RE.

The academic field of behavioral psychology has shown that “precommitment” in the form of writing things down can help us stick to a goal or behavior. Maybe you put it somewhere that you will see it daily. Or once a month (when paying bills perhaps). At the very least a written manifesto can help you navigate a rough patch. At the point where you may hit a motivational low, or a setback, pull out your manifesto and remind yourself of what you envision for your future.

Put everything on the table. Cutting out extravagant spending, or in the personal finance vernacular “spending only on needs, not wants” is obviously going to be required. But just as important is reducing what you spend on needs. For example, housing is definitely a need, but this is likely the biggest-ticket item you may be able to reduce. Downsizing to a smaller place, moving another 15 minutes-  or more —  outside of the city where housing is less expensive, or if you can telecommute, moving to a less expensive part of the country. Reduce your housing costs by 50% and you’ve just found a major source of savings.

Does your household really need two (or more cars?) And if you’re leasing you are so not on the FIRE track. The best car move is to pay as little as possible for a car that meets your needs, and then drive it until it stops being reliable. That’s not three years (the typical lease period). Cars are built to last. The best car is one that you get paid off ASAP and then keep driving for years.

Look for Premium Savings. Pull out all your various forms of insurance: renter’s, home owners, auto insurance and yes, health insurance. Across the board, if you take responsibility for a higher deductible your annual premiums will be lower, and can add up to substantial savings.

Switching to a high deductible health insurance plan (HDHP) can be one of the smartest FIRE moves. Once you are enrolled in an HDHP you can start saving in a Health Savings Account (HSA). The tax-breaks on an HSA are unbeatable.

Be an Investing Fee Fiend. Every penny you can keep growing in your 401(k), IRAs and other investment accounts rather than paying out in fees will help you get to your savings goal faster. Every mutual fund and exchange traded fund charges an annual expense ratio. But the range is ridiculous; the annual fee might be more than 1.2% or less than 0.10%. That’s a huge difference. Let’s say you earned an annualized gross return of 7.1%. If you pay a 0.10% expense ratio your net return is 7%. That will turn $100,000 today into nearly $1.5 million in 40 years. But if you are paying 1%, your net return is 6.1%. After 40 years you would have less than $1.1 million. A $400,000 swing, just because you invested in low-cost index mutual funds and ETFs.

Buddy Up. Creating a social circle of fellow FIRE followers is important. Academic research has shown what we all know intuitively: it’s easier to stay committed to a goal when we have the support of others, or when we have publicly declared our intentions. FIRE friends are a source of education, encouragement, and accountability. (We all need some of that from time to time.) You might start with the robust Reddit online FIRE community, and then do some local searching for like-minded FIRE souls.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

About the author
Carla Fried

Carla translates business and personal finance concepts into engaging content that helps individuals make more confident choices in how they manage their money. Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.

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