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9 Tips to Conquer FIRE: Financial Independence, Retire Early

Barbara Friedberg

Take charge of your financial life.

The FIRE movement -- financial independence, retire early -- is, well, on fire. The FIRE tsunami originated with the classic, "Your Money or Your Life," by Vicki Robin and Joe Dominguez. The book inspires millennials to change their relationship with money, live deliberately, spend mindfully, eliminate debt, save early and build wealth. Bloggers to mainstream media have embraced the FIRE concept of self-determination. Simply take charge of your financial life, get out of the rat race and live according to your own rules.

How to jump on the FIRE bandwagon.

Actually, FIRE is a misnomer as the 'retire early' idea is not the traditional retirement. For FIRE proponents, retire early means have the financial resources to spend your time doing work that is meaningful or contributing to society in the way you design. If you want to jump on the FIRE bandwagon, become financially independent sooner rather than later and have the freedom to craft your own life, explore the following strategies.

1. FIRE starts with self-reflection.

Before embarking on your FIRE journey, "define what financial independence means to you," says Rich Ramassini, director of sales and strategy at PNC Investments in Pittsburgh. Decide if financial independence means that you don't have to work at all. Understand your goals, values and what motivates you toward financial independence and early retirement. Retiring early because you hate your job isn't a sustainable goal, Ramassini says. You need to grasp what you'll do with your time once you hit your financial target. In fact, many FIRE devotees have a calling -- something that they want to do -- after hitting financial independence.

2. FIRE requires a strategy.

First, calculate how much money you will need to reach your personal financial independence goal. That amount can vary widely depending what you want to do with your time, where you'll live, other sources of income and how long you expect to live after retirement. Ramassini explains that some FIRE aficionados estimate that "once your net worth is 25 times your annual expenses, you've achieved financial independence." You can do the planning on your own or consider getting help.

3. With debt, there's no FIRE.

Carrying debt circumvents all other wealth-building strategies. Pay 10 percent interest and even if you earn a 7 percent return on your investments you're still out 3 percent. There are countless ways to pay off debt, along with a variety of companies to help you do so. "If you have student loans, you may be able to take control of them by refinancing them into a better deal," says Robb Granado, CEO of CommonBond in New York. By cutting your interest rate, consolidating the loans and committing to an aggressive repayment plan you can get your debt paid off faster. And, if your employer doesn't offer a student loan repayment benefit, why not recommend one?

4. To attain FIRE, extreme saving is a must.

Extreme saving and cutting costs go hand-in-hand to achieve FIRE, says Bob Dockendorff, vice president of Claro Advisors in Boston. The FIRE community strives to save 40 to 60 percent of their income. For instance, a 25-year-old couple earning $150,000 before taxes might save $50,000 and live on $50,000. Dockendorff explains that if they invest in low-cost exchange-traded funds and earn 7 percent annually, by age 40 they'd have approximately $1.25 million. At that point, with 4 percent withdrawals, they can sustain their lifestyle, Dockendorff says. And they've got the choice to work meaningful and fulfilling jobs, if they choose.

5. Living cheaply is a cornerstone of FIRE.

With saving apps, shared housing platforms, frugality websites and more, there's no excuse for living extravagantly. "Sacrifice is at the heart of FIRE," says Matt Ahrens, financial advisor with Integrity Advisory in Overland Park, Kansas. Cheap living comes in many forms and is inspired by your personal values. Ahrens recommends replacing the annual vacation with a biennial getaway. Buy a car every 10 years -- or 15 -- instead of every seven. "Unless you win the lottery, you're going to need to sacrifice and live below your means," Ahrens says.

6. FIRE proponents slash housing costs.

Housing is typically your greatest expense. In April 2018, the average U.S. home costs $394,600 according to the U.S. census website. Cut your housing costs and the FIRE dream inches closer. The tiny living movement is awash with folks practicing radical downsizing and living minimally in structures the size of a shipping cargo container. You can build and furnish your own tiny home for well under $50,000.

7. FIRE winners invest aggressively.

The stock market has returned over 9 percent annualized for almost a century. That return is tough to beat. If you're looking to retire early, that means you must plan for an extremely long time horizon and choose your asset allocation carefully. "If you are in your 20s, 30s or 40s and plan to retire early, you're likely to live for another 30 to 50 years or more. Over this period, stocks will provide the best long-term growth," says Lawrence Solomon, director of financial planning and investments for OptiFour Integrated Wealth Management in McLean, Virginia.

8. Have a side hustle to provide more FIRE income.

Multiple income streams will cushion stock market drops or surprise expenses. With unexpected financial blips, add a side hustle to dividend, capital gains and potential real estate income.The BNP Paribas Global Entrepreneurs 2016 report states that millennials are starting their own businesses at an average age of 27, younger than previous generations. So, start early and you don't need a giant business such as Facebook (ticker: FB) to become wealthy over time.

9. Automation is your friend.

Finally, if you're serious about FIRE, set yourself up for success. Automate your saving and investing, recommends Levi Sanchez, co-founder of Millennial Wealth in Seattle Washington. Diversify your investments and enjoy the frugal living challenge.



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