Financial freedom has a very long history. In more recent years it has affectionately become to be known as the FIRE movement, Financial Independence, Retire Early (FIRE).
Its concept is basic in nature, learn to slash your expenses and save as much as your income as possible. This will rapidly build up your nest egg and allow you to retire much earlier than say age 65. Once you have built up large enough savings you can leave your traditional nine to five job and begin drawing a modest income from the savings each year, only increasing the amount to adjust for inflation. That’s it.
It sounds simple, but could you cut your current expenses to increase your saving rate by 20, 30, 40 or even 50%? To make a Financial freedom plan a reality you also need to debt free to maximize the saving potential.
Financial independence is generally defined as having enough personal wealth to live without having to actively work. Most people call it retirement, but most people perusing FIRE retired from full-time work, but do not completely retire. Since they now have a big amount of time on their hands spend time on more meaningful work or passion projects.
In order to save the most, it’s no secret you need to dump consumer debt as soon as possible. Debt just complicates things like savings and adds stress to your everyday life. Once debt free you will have more cash to build wealth quickly.
The sooner you can start saving the better, even if it’s a small amount at first. A small amount is still better than no amount. This allows compound interest to work its magic. Automating this savings or paying yourself first allows you to condition yourself to live without the money from the beginning. Have you ever gotten a raise and began thinking of ways to spend the increase? Why not take a percentage of it or even all of it and save it? Doing this before you receive it and begin to spend it prevents you from missing it because, in theory, you never had it.
One of the only ways to achieve extreme early retirement is to cut expenses. The more you can save the quicker you can achieve your goal. Here are some ways to achieve this:
- Don’t subscribe to cable TV
- Drop high priced cell phones
- Live in a state with no income tax.
- Use public transportation or bike to work.
- If a car is needed only buy used and pay with cash.
- Only eat out for items you can’t prepare yourself at home.
These might seem like extreme measures, but cutting 15-20 years off your nine to five job and adding them to retirement might make the above suggestions easier to handle.
Take advantage of free money when you land that first job pay attention to the benefits information like 401K, pension, etc. Most companies offer a match up to a certain percentage and if you don’t opt in you could be losing out on 1-4% of your salary. When you consider starting early and compound interest that could be a lot of money being left on the table if you don’t act.
Don’t be afraid to ask for help to assist you with your savings or retirement decisions. At the very least do you own research and homework and make an educated decision on where to save or invest your money. Sure, there is no guarantee when it comes to investing, but this isn’t the Powerball and we don’t just pick our favorite number or kid’s birthdays and hope we get lucky.
If you are able to cut cost and build wealth in a shorter period of time than a traditional 40-year career, what are your next steps? Anything you want! Here are some possibilities:
- Volunteer and help others.
- Work on passion projects.
- Find other passive revenue streams – real estate, blogs, etc.
- Do something you love and get paid for it.
Having the sizable nest egg gives you the flexibility and freedom to do more of the things you prefer or make you happy. If they are not the right fit you can move on to something else. That is the goal with this plan. Breaking the traditional model of working until you are 65.
Do you have any financial freedom dreams? If so what steps are you taking to accomplish?
Brian is a dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013 who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. He blogs at Debt Discipline.