Retire early?!? For many, I’m sure that seems like a crazy idea. That’s only for rich people or people who own their own self-sustaining business, right? I used to feel this way until I was introduced to the FIRE (Financial Independence, Retire Early) movement. There is a very large community of people who are seeking financial independence and many who have already done it, but what exactly is the movement all about?
The Basics of Financial Independence
At its core, financial independence is not about retiring. Instead, it’s about freeing up the time to do what you value the most. Working a full-time job requires a substantial amount of time and energy which leaves little left over for family, hobbies, and self-care. Financial freedom opens up so many possibilities. You can finally start that business you’ve always wanted. You can take vacation more than just for two weeks every year. That book you’ve wanted to write can finally get written. It is all about doing what you authentically value and not having the restrictions of a job. It’s not about retiring. It’s about living.
The path to financial independence is not easy. But I do want to dispel any myths, it’s not about creating extreme limits for yourself. It’s more about financial values. (See my post about finding abundance through budgeting.) You may need to find ways to cut back spending so you can save more and invest more, but the key is really to focus on spending money on things that matter to you the most.
I don’t care about a nice car so I don’t have one. I do care about eating 90% dark chocolate everyday. I’m more willing to spend money on my health, food, or travel, but I own very few electronics. My TV was free, my gaming system is over 10 years old, and I held onto my old cell phone for as long as I possibly could. Personal finance is more about personal values than finance. I’m sure there are those in the financial independence movement who live more cheaply than we do and that is okay.
The math behind financial independence really comes down to being able to save a large percentage of your income. This either means you need to spend less, make more, or both. If you need, $80,000 per year to live, your path to financial independence will be substantially different than someone who can live on $40,000 a year. The less you spend the more you save and the less you will need when you retire-a double whammy. Learn more from Mr. Money Mustache.
Growing Your Wealth Through Investing
There are endless paths to financial independence and countless investment vehicles to get there. The three main ones are investing in the stock market, real estate, or your own business. In my opinion, none of these should be touched unless you are debt-free except your mortgage (student loans, credit cards, car payments, etc. need to be paid off first.)
Investing in the stock market is more passive, but also has its risks. I’m very interested so this is my preferred investment at the time. I have much more to say on the topic and will continue to expand on this in future posts.
Real estate can create a passive income through rental properties or Airbnb, but comes with the risk of additional debt and being a landlord. I’m not really interested, but others do very well in this.
Building your own business that creates passive income and doesn’t require you to constantly be “at work” is another option. This would look differently for everyone. There is much more to be said about this option as well.
Whatever the means of investing, the goal is to grow your wealth so that you can have a passive income that covers your expenses and is large enough that it never runs out. If this still seems improbable, I get that, but it is possible and many have done it. The best way to learn is to study from those who’ve done it. I recommend ChooseFi as a starting point.
Open Up to the Possibility of Financial Independence
If this all sounds really great, but you have no idea how to get there, that is actually completely normal. Yet, don’t get discouraged! One of the most limiting mindsets is one of scarcity and fear. When you can be open to possibility and actually believe something can happen, the opportunities are endless. Combine this belief with appropriate action and you will be well on your way to financial independence.
If I learned anything from the research I’ve done so far, is that making an idol out of financial independence is a real danger. Don’t get into the mindset that you can only be happy when you reach financial independence. Learn how to be happy as you work toward financial independence. Enjoy the ride! Happiness is not connected to a dollar amount or limited to specific stages of life. If you never reach financial independence, you can still find joy in life. Even though this is true, don’t let it also hold you back. Financial independence can open up so many opportunities to be true to your authentic self. Be bold and be open to the possibilities of financial independence!