One of my biggest heroes of all time is Benjamin Franklin. This founding founder single handedly shaped several aspects about how we live our life today. His ingeniousness has made such a vast impact on the world and teaches us that there’s is no limit to what we can accomplish individually and collectively. Despite Benjamin Franklin’s vast inventions and contribution to the world, he retired from active business/employment at the age of 42, many historians believe that he was able to contribute so much to the advancement of humanity because he retired from employment at an early age. I find the concept of attaining Financial Freedom at an early age and retiring from business to pursue other goals so fascinating, so when I came acr0ss the Financial Independence, Retire Early (FIRE) movement, it was music to my ears. Benjamin Franklin retired ealyfrom active business and focused on enjoying life and doing work that “matters”. We should aspire to attain financial independence and retire as early as possible and focus our energies on making a difference for humanity and enjoying life.
6 Steps to attaining the FIRE’d status
- Know your number: Your number is your investable Net Worth. It is really important to know your “investable” net worth or the number it takes for you to be FIRE’d. This is the foundation of the FIRE movement. The rule of thumb is 25 times your desired annual expenses. So if you plan on living on $50,000 per year, then your FIRE’d number will be $1,250,000.
- Safe Withdrawal Rate–4% rule: The 4% rule is essentially the inverse of “knowing your number” above. Many experts say that the safe withdrawal rate from your nest egg is 4%. With the average return rate of 7% or higher from investments, theoretically, you can withdraw 4% or less annually and have the remaining 3% keep up with inflation growth. At this pace, you should never run out of money.
- Work on your income: Even though you do not necessarily need a huge income to achieve the FIRE’d status, it is certainly helpful and you should be able to attain it faster with a higher income. It would be pretty difficult to attain FIRE’d with a low income with little possibility of growing your income. Work on a career field with a potential for high income, bonuses, commissions etc.
- Work on your expenses: Once you know your number, the first step is to begin saving towards this number. This is accomplished by taking control of your expenses. Track where your expenses go and try to delay gratification as much as possible. Every Dollar counts
- Reduce your debt: The more you have to expend on consumer debt, the less you have to invest and the longer it will take for you to get FIRE’d. Work on reducing all of your consumer debt including your mortgage. Don’t fall into the interest rate trap, that it is wiser to keep a 4% mortgage in order to make 7-12% returns in the marketplace. Theoretically, this is correct, however, practically and once personal behavior kicks in, this is seldom the case for most people. The fact is that it’s not wise to gamble the funds you have today chasing a higher rate of return so that you can pay your mortgage tomorrow. If you just pay off your mortgage today, you will not need as much to live tomorrow.
- Invest regularly, systematically and conservatively: Many experts agree that the most important part of getting FIRE’d is consistently and systematically saving and investing. Let the power of compound interest work for you. You have to invest regularly, systematically and conservatively. Do not pursue high risk investments in an attempt to attain FIRE’d faster. High risk often come with a greater chance of capital loss.
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