How to start your FIRE journey, according to a financial planner

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Fire (financial independence, early retirement) has gained prominence over the years as more and more people are drawn to the idea of ​​having enough money to give them the freedom to spend their time as they wish, without being at the mercy of others. a paycheck and an employer.

But the movement also has a reputation for being overwhelming and even daunting since many followers often go to extreme measures to save 50% to 70% of their income each year to achieve this goal. In comparison, financial professionals generally recommend that you save 15% of your income each year in order to retire at the traditional age of 65.

While each person certainly has their own path to early retirement, there are some common tips that can apply to any FIRE newbie. Below, To select received four tips from Michael PowersCFP and founder of Manuka Financialspecialized in help people retire early.

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1. Make sure you have your financial bases covered first

One of the most important steps to take – even if you’re not actually pursuing FIRE – is to make sure you’ve mastered some of the financial basics: emergency fund in place to help you cover unexpected expenses (medical bills, car or home repairs, etc.) without incurring additional debt. You should have any high interest credit card debt paid, plus the ability to continue making monthly payments to any loan debt such as student loans or a mortgage.

Those who pursue FIRE may find that they will need to save and invest up to 70% of their annual income to achieve their goals. According to Powers, taking a look at your overall financial picture can help you know where you are now and where you need to be.

“Try to learn more and strengthen your own financial situation,” he says. “Make sure you have an emergency fund and can continue to pay off your high-interest debt. And review your assets, liabilities, income, and expenses so you can really focus on improving of your financial plan.”

If you haven’t already been track your expenses or have no idea what your financial starting point looks like, using a budgeting app to like mint or You need a budget (YNAB) can help you fill in some of these gaps. They automatically connect to your bank accounts, credit cards, loans and investment accounts track every dollar so you know exactly where your money is going.

Once you have an accurate picture of how much money you’re bringing in, how much you’re spending, and how much you’ve saved or invested, you can start thinking about areas where it might be best to cut back on spending – or increase your income – to begin with. make FIRE a reality.

2. Determine your why

“One of the most important things you should focus on at the start of your FIRE journey is figuring out your why,” says Powers. “Why do you want to retire early? Is it for more flexibility? Is it to spend more time with your family? Is it to travel? Is it to do something completely different from what you currently doing?”

Sure, think about your goals can be an effective way to stay motivated throughout your journey, but these goals can actually change the FIRE strategies you implement. Powers also claims that when you think about why you want to achieve FIRE, you may find that the goals you want to achieve can actually become a reality sooner than you thought possible – without having to spend very many years. to save every dollar and feel like you. make a lot of initial sacrifices.

“For example, if you’re pursuing FIRE because you want flexibility while your kids are still young, maybe you can make some adjustments to your budget so you can work part-time now,” Powers says. “Or, maybe you can move on to a less demanding job that doesn’t require you to work long hours. Consider if there are other actions you can take in the shorter term that can get you to the same goal.”

3. Identify your needs versus your wants

The FIRE movement has traditionally been associated with an extremely low rate of spending and an aggressive rate of saving and investing. For many people this is much easier said than done as there are many gray areas in life where it’s not so easy to say “no” to spending money to save. This realization can leave many people exhausted and even isolated.

But Powers says that over the years, movement has made room for a little more balance — and balance can still lead to achieving your goals.

“I think the people I saw who have succeeded in this are people who are able to easily identify needs versus wants so they can focus their spending on the things that generate happiness and joy in their own lives,” says Powers.

In his book, I will teach you how to be rich, Ramit Sethi explains this concept of conscious spending, which affirms that it is possible to spend as much as we want on the things that make us happy as long as we ruthlessly cut spending on the things that do not interest us . This will allow you to create your version of a “rich life”. This same idea applies here.

Saying no to everything, including the things that make you happy, can cause you to feel unhappy during your FIRE trip, and in extreme cases, it can even cause you to lose close ties with the people you love. But by creating space to spend on the things that bring happiness, whether it’s coffee from your favorite store or the annual family vacation, you maintain your joy and stay motivated to retire early.

4. Determine where you should save and invest your money

There are many different economies and investment vehicles you can use to set aside money for retirement, and they all have different tax implications, contribution limits, and distribution rules. This is where a financial planner can definitely lend a hand to make sure you’re saving and growing your money in the right places.

For example, some people prefer to be in the field with their investments, creation of brokerage accounts in big companies like loyalty or Charles Schwab. Those who prefer to be more passive may have a robo-advisor to like wealth front or Improvement established their portfolio for them, based on their risk tolerance, time horizon and investment objectives. A financial planner can guide you towards the best approach and strategy. For many beginners, this may mean starting out by putting your money in index funds, for example. Index investing lets you put money into the biggest US companies with low fees and minimal risk.

When it comes to certain tax-advantaged retirement funds, a financial planner can help you decide based on when is the best time for you to pay a tax bill: now, based on your current income, or the future, depending on your future income. It can help you choose between a Roth or a traditional IRA.

A financial planner can also help you with other aspects of your financial life that play a part in your FIRE journey, such as how much house you can affordHow? ‘Or’ What pay for your child’s college education or how to fund your own graduate degrees while staying on track for FIRE.

To get started, you might consider checking to see if your employer offers free financial planning services as a company benefit. If that’s not an option for you, you can use a tool like Zoe Financial to be matched with a financial planner who specializes in the areas that concern you most.

At the end of the line

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.


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