Start the journey to financial independence.
Learn what financial independence is and the financial independence retire early (FIRE) movement.
Discover practical resources to help you take the first steps.
Simon Sinek tells us the power of ‘Why?’ in his TED talk that has now had over 50 million views. Starting an online business, the attraction of earning income (outside of a job) is that ‘Why’. If the bigger and ultimate goal is financial independence and retiring early, this article will help you learn more about that path.
What is financial independence and the Financial Independence Retire Early Movement?
Financial Independence is defined as:
“having an income sufficient for your basic needs and comforts from a source other than paid employment”.
Financial Independence Retire Early (FIRE) is a movement of people that are optimising their income and savings (sometimes up to 50-70% of their income) to reach financial independence within a short time and retire early.
“FIRE allows people to choose how they want to spend their time rather than be forced to spend their time at work.”– Kristy Shen
Your Money or Your Life is a great book for working out how to align your values with your money and change your behaviours and attitudes towards money. If you seem to self-sabotage yourself around money or can’t work out where it also goes, then this is essential reading on your Financial Independence Journey!
If the Financial Independence journey sounds good, here’s how you start.
Learn more about your money and how you spend it, the FIRE concept and path.
To know how to reach Financial Independence the first question you need to answer is “how much income do you need to cover your basic needs and comforts?”.
In the FIRE movement, there is a basic calculation to work this out.
- Work out your annual expenses – how much does it cost you to live your life each year (that includes everything, not just the bills, the fun bits too).
- If you want to retire early using investments then times your expenses by 25. That’s how much you need to have invested to live off the return from those investments, without reducing the size of your investment.
If your idea of Financial Independence includes still earning some income through a business or side hustle, you can incorporate that into the calculations.
There is a great FIRE calculator here that will give you some guidance that looks like the below. This is just a guide, but its fun to play around with. If I can reduce my savings to xxx what does that mean? If I can increase my income to xxx how big a difference will that make?
With your FIRE numbers, you have your goal and can make decisions to reach your goal.
Below are some of the best resources to help you on the journey.
- Basic education of what FIRE is and how it is achieved: Aussie Firebug and the Playing with Fire documentary
- Your Money or Your Life: A 9-step approach to getting your values and behaviours around money sorted and working out what’s important to you.
- If you are Australian, also read the Barefoot Investor for practical steps on looking after your finances and reducing your outgoings.
The FIRE movement is a community of likeminded people, across the globe living very intentionally to achieve financial independence. To reach Financial Independence, focus and a strategy are needed. Your FI number is your ultimate goal, so you know what success looks like. The movement is full of real people on the journey to reach FI. They also often share their knowledge and experience very openly. The community can be found in many places Reddit has both International and local Financial Independence groups, including Financial Independence Australia. There are also many Facebook groups too. There are a lot of people seriously good at crunching numbers to give you assistance and guidance.
Here are some more details on the above recommendations:
- Aussie Firebug – this is a guy on the journey, helping others on the journey. He’s got a great ‘start here’ section.
- Your Money or Your Life – this book is a game-changer. It will work on you behaviourally to change your attitudes and values around money.
- Playing with Fire documentary – this is great if you want to take a break from reading and instead enjoy kicking back to watch the documentary. This documentary also connects with many other leading figures in the Financial Independence movement.
The Financial Independence Retire Early Movement (FIRE) takes a really practical look at how to achieve the all-elusive financial independence.
The Financial Independence Journey
As you start connecting with more people in the movement you learn that few can take a straight path to financial freedom. Life’s not quite that neat. It throws curve balls.
Important to your success will be deep work on your values, living intentionally, and a healthy attitude and behaviour system around money. You won’t have the long term success you are after without this work. Self-sabotage will be your constant companion. That’s where Your Money or Your Life is great assistance on the journey.
The FIRE journey will make you question “what are you willing to give up now to achieve Financial Independence (FI) quicker?”
This is a big question. No one is guaranteed another day, let alone another decade. 2020 and the COVID-19 Pandemic has proven that big curveballs can and do come out of nowhere. Everyone in the FIRE movement makes their personal choices about:
- how much harder are they willing to work to boost their income and therefore increase their savings rate?
- how frugally they want to live, again to increase the savings rate but also to lower their FI target number?
- what sacrifices they make now for a better future, and what’s the best balance when the future is not guaranteed?
Living frugally can assist in alleviating financial stress ad reaching FI quicker. Your Money or Your Life gives plenty of ideas on how to do that. Life experiences can begin to drop away if you focus too much on money and the need to earn more. It can assist you to reach Financial Independence quicker but never take today for granted. The Playing with Fire documentary follows the journey of a young family in the US making those decisions, it’s a great introduction to the concepts and decisions people make. Everyone’s journey is different.
The 4-hour workweek by Timothy Ferris encourages you to question what you are doing with your time and money. The reason? Time is your biggest asset and you trade your time for money. Regardless of whether you want to aim towards Financial Independence, intentionally deciding how you spend the time you have is an important exercise.