Do you dream of escaping the grind of working 9 to 5 while you’re still young? You’re not alone.
The Financial Independence Retire Early (FIRE) movement has grown hugely in popularity over the last several years.
Many people are starting to realize that there is more to life than working until age 65 to enjoy a few good years of retirement that aren’t even guaranteed.
FIRE Definitions And Basics
IRE was born from the 1992 book “Your Money or Your Life” written by Vicki Robin and Joe Dominguez. FIRE stands for Financial Independence, Retire Early and it is a strategy and lifestyle that breaks societal norms by encouraging and allowing for retirement before the traditional 65 years of age.
The original aspects of FIRE include living frugally, saving and investing as much as possible, and finding ways to increase your income.
Reality Of FIRE
FIRE encourages saving around 50-70% of your income to build up an emergency fund and net worth. Your net worth must be at least 25x your current annual expenses and it needs to be in some form of investment that is returning at least 7% per year, compounded.
There is usually a max withdrawal of 4% per year from the net worth that you can use for your living expenses.
Here is an example of what living expenses would look like:
- Living Expenses: $5,000/month
- Net worth to achieve FIRE: $5,000 x 12 month x 25 = $1,500,000
- $1,500,000 must have return of investment (ROI) at least 7% per year, compounded
- Your living expenses after retirement: $1,500,000 x 4% = $60,000 annually ($5,000/month)
Do you dream of escaping the grind of working 9 to 5 while you’re still young? You’re not alone.
The Financial Independence Retire Early (FIRE) movement has grown hugely in popularity over the last several years.
Many people are starting to realize that there is more to life than working until age 65 to enjoy a few good years of retirement that aren’t even guaranteed.
FIRE Definitions And Basics
FIRE was born from the 1992 book “Your Money or Your Life” written by Vicki Robin and Joe Dominguez. FIRE stands for Financial Independence, Retire Early and it is a strategy and lifestyle that breaks societal norms by encouraging and allowing for retirement before the traditional 65 years of age.
The original aspects of FIRE include living frugally, saving and investing as much as possible, and finding ways to increase your income. [/et_pb_text]
Reality Of FIRE
FIRE encourages saving around 50-70% of your income to build up an emergency fund and net worth. Your net worth must be at least 25x your current annual expenses and it needs to be in some form of investment that is returning at least 7% per year, compounded.
There is usually a max withdrawal of 4% per year from the net worth that you can use for your living expenses.
Here is an example of what living expenses would look like:
- Living Expenses: $5,000/month
- Net worth to achieve FIRE: $5,000 x 12 month x 25 = $1,500,000
- $1,500,000 must have return of investment (ROI) at least 7% per year, compounded
- Your living expenses after retirement: $1,500,000 x 4% = $60,000 annually ($5,000/month)