For those of you who still haven’t heard about F.I.R.E movement: it’s letters stand for :
Pretty self explanatory this is a movement where young adults (specially millennials) are looking for a way of achieving financial independence earlier than what traditionally we have been taught by society.
Instead of waiting until you are 65-70 years old to be allowed to retire and finally have the time to focus on doing the things you love the most, like spending time with family, traveling, having flexible schedule, launching the business of your dreams without financial pressure, care more about your health, invest more time in your hobbies, etc etc. Millennials (we) decided that we wanted to experience freedom, health, and happiness as early as possible.
There has been tons of criticism around this movement, some economists claim that it is impossible to save enough money to “retire” so young and support ourselves and our families for so many years since we live longer and apparently are aiming to work for less years.
So, they seem to have a point… But what they don’t address is that this movement is NOT about stop working for good, but more about achieving the freedom you need to be able to do what you love, and explore how can you make a living enjoying your work and your life in the process.
Sounds like utopia right? Well it is actually pretty achievable for most people able to read this blog post, and here is how in 3 steps:
1. The first thing to focus on is: downsizing you cost of living to the lowest possible. Wait, don’t disregard this as anything extreme, it is actually a healthy analysis of your current way of living and the costs that your lifestyle is incurring in your finances vs. the happiness it brings to your life.
For example: if you run a budget analysis on your monthly expenses, from housing, transportation, travel, food, restaurants, everything. Most likely your highest cost is housing whether you are paying a mortgage , or renting this is usually the highest cost.
Before I continue I want to share a quote to put things in perspective:
Normal is getting dressed in clothes that you buy for work, driving through traffic in a car that you are still paying for, in order to get to a job that you need so you can pay for the clothes, car and the house that you leave empty all day in order to afford to live in it.Ellen Goodman
Having said that, you can start understanding what I mean with lowering you living cost, starting from your house/appt, if you think about it most likely you might be able to move to a smaller/ further away / cheaper home in order to save some of that cost.
Here is why the whole “tiny house” movement has been growing so much in the last years. Where we see people moving into a 300 sqfeet home on wheels, where they can live for very little, paying no rent, no mortgage and even their services expenses get very low since they don’t waste much electricity, water etcetc..
If you search for this tiny house movement you will find so many reasons beyond economy, why people are choosing this lifestyle over living in a big house.
But the whole idea is that you are able to lower your cost of living without lowering your quality of life!
I just mentioned the highest cost of living which is housing but you can make your list and understand what your priorities are, so you can start lowering the cost of as much as you and your family can. Please, remember to do at least a quick google search on “more economic alternatives of…. ” anything you think it might be impossible to lower your expenses on, the reality is that you might find new innovative, better and cooler ways of doing things that will bring you tons of savings to your wallet. Housing is just one of them.
I will dive deeper into this on the podcast and with more examples but for the sake of keeping it simple lets move on to the second step:
2. PAY off your DEBTS ! There is no other way to say this, but just make sure you have no debts. Start with any type of credit card debts you might have (since most likely that will be the debt with higher interest rate you are paying) .
Paying everything should be a priority, the way to do this is:
Once you have analyzed your expenses and decided where you will be able to cut down on.. you take that money you just saved and use it to pay as much as you can of your debt every month, turning it into a paying plan, setting clear goals to when you will be able to be completely out of debt.
I don’t think I should have to mention that from the moment you decide to work on your FIRE plan… you should NOT purchase ANYTHING through credit. The rule is:
If you can’t buy it in cash(one single payment) you just can’t afford it.
and last but not least:
3. Save/invest most of your income.
There is a caveat here, this applies only to people with a relative high income (much higher than their expenses), because if you are just recently graduated or didn’t go to college and (sadly) you are not a self taught coder, that can earn very good income (this is why I encourage everyone to learn to code) then your income most likely be quite small and you won’t find it that easy to save 70% of it, even if you have no debt of high cost of living, in this case you should invest your TIME in learning and earning experience that is and will be valuable in the market so you can increase your salary/run a business that pays better.
If you find yourself in the population type that earns good income, has been able to buy a home, and support a high lifestyle then you can cut back in all you can until you are able to save&invest >70% of your income for a couple years.
With this 70% of income saved while your lifestyle cost is only <30%, then in a couple years you will be able to save enough to support you for quite some years (up to 5 years) so you not only enjoy life, time and family but also figure out what is it that you love to do that can add value to society and can create a good enough income for you to support yourself from that activity.
The point is that you save enough to build a good “cushion” that will buy you time to:
1. Figure out what you love doing and where there is an opportunity to market it.
2. Invest time in that work/activity you love until it starts producing the income you need to support yourself (since you have already a very low cost of living).
Then your savings left become “retirement savings” and stay in an investment fund where with time it will keep increasing (due to compounding effect) and when you can start adding on that investment a bit every month you will be able to continue your productive life working doing something you enjoy, spending time and money in what you actually care the most for (traveling , family, friends, pets, …you name it), and still be a responsible society contributor adding value with your activity and saving for your old years.
If you are reading this thinking: “I don’t have much, not a big salary or big house or debt or anything to cut down” then you are also in a good position to design the life you enjoy living the most.
Just don’t let media fool you with the idea of “having a lot of money means happiness” because it doesn’t.
Read, listen and learn about yourself and what truly makes you happy so you can start designing and building that life you want.
The key to a steady personal economic growth is to always keep learning and evolving.
Get experience in the field you are interested in, learn as much as possible and keep growing, you will realize in some years when you look backwards(connecting the dots) how important it was for your growth that you kept learning and evolving.
I hope this blog post inspires you to structure and design the life you dream responsibly for yourself and your family 😀
Let me know what you think.