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fire early retirement

Learn what it takes to achieve FIRE Early Retirement

Thinking of Retiring Early?

The traditional practice of working until you’re 65 or older just doesn’t appeal to most young working Americans. Planning and preparing for an early retirement takes a lot of hard work and discipline, but for most, it’s totally worth the effort. The FIRE concept (Financial Independence Early Retirement) involves several necessary actions that require discipline and changes in lifestyle. You really need to make a serious commitment first and then follow these eight practical and actionable steps to successful early retirement.

Step #1: Take Inventory

Calculate your net worth including property owned, savings, investments.

Add up the salaries and additional income in your family.

Step #2: Calculate Your Annual Spending

Be sure to include rent/mortgage, car payment and maintenance/ gas, utilities, cable/satellite TV, credit card charges, groceries, clothing costs, tuition, medical/dental, lawn/pool/cleaning services, dining out/entertainment, travel, holiday purchases, insurance, and all other miscellaneous charges. Don’t forget Amazon and other online purchases, food delivery, all expenses!

Step #3: Establish Target Numbers

Decide on the age you want to retire. Then calculate how much to save by adding up your monthly expenses and multiply it by twelve. It’s a good idea to increase that number by 10-20% so you have some “wiggle room” if unexpected expenses arise. You will need at least 20 – 25 times the amount of your yearly expenses. If your yearly expenses are $50,000, then you would need between $1,000,000 – $1,250,000 to retire. Calculate your retirement budget and determine if you can live off your investments at the age you chose to retire or if you will need to work longer. How long until you collect social security/pensions and qualify for Medicare and other benefits?

fire early retirement

 

Step #4: Increase Your Income

Now is the time to increase your earnings. Do you have any hobbies that could earn for you: woodworking, raising chickens, painting/arts and crafts, organic gardening? Do you have a side hustle: driving for Uber or Lyft, private tutoring, garage sales, painting houses? If the answers are no, start looking for something to help you earn extra money while still working at your regular job.

Step #5: Start Living Below Your Means

This is where the discipline and commitment comes into play. In order to retire early, some serious saving is necessary; like putting away about 50% of your income. Take a long, hard look at your monthly expenses and start eliminating unnecessary charges. Do you pay a service to clean your home, maintain your swimming pool or spa, a landscape service, pest control and other services? If so, eliminate them if at all possible. Do you frequently dine out or order food to be delivered? Do you purchase ready-made meals that are delivered to your home? Start cooking again and bringing your lunch to work and make dining out or ordering in a rare experience.

If you have a Starbucks habit (or some other custom coffee shop) eliminate it. Invest in an insulated coffee thermos and bring your own from home. Stop unnecessary clothing purchases. Try to go a year with only purchasing socks and underwear unless you absolutely need something.

Stop Wasting Money On Things You Don’t Need

Examine your Amazon and other online purchase history and curb it. Explore thrift stores and yard sales for things you need whenever possible. Look at your cable/satellite television services and streaming channels. Get it down to basic service with only one or two premium/streaming channels. Sign up for an energy-saving utility plan for heating and cooling if you haven’t already done so. Shop around for better insurance rates for auto, home, and health policies. Examine your hobbies, do they cost a lot of money? If so, try to take up new and different ones that don’t require much money like hiking, biking, and running. Do you really need that gym membership or could you work out at the YMCA or community facilities? You also might want to think about how much car and home you need.

Is it a good time to downsize and save more money? If you tend to purchase everything with a credit card, think about saving up and spending cash for necessary items only. Ride your bike instead of driving whenever possible or take public transportation or form a carpool. Pay off your cards every month to avoid paying high interest. Travel less frequently for vacations. Be creative by taking a “Staycation” at home and order pay-for view movies and food delivery for a change, or check in to a  local hotel for a weekend instead of a week at Disneyland. Look for other ways to trim the fat in your monthly expenses, make it a game!

 

Step #6: Put Those Savings to Good Use

Make extra payments to pay off your car and home loans early. Your goal should be to have no debt when you retire. Max out your retirement accounts; IRAs, 401K, 403B, and other accounts. Get a brokerage account and invest in low-cost index funds.

Step #7: Have a Back-Up Plan

Be prepared in case unforeseen events disrupt your retirement plans. Could you go back to your job or get another easily? Do you have enough saved to ride out the rough times?

Step #8: Stay Informed and Be Flexible

Read self-help books on the subject of early retirement and follow the blogs. Talk to others who have retired early and ask questions. Be flexible and willing to make changes to your plans if you learn about new or better methods than you’re currently using. The FIRE Early Retirement movement is easy to achieve when you have the right information.

 

Early retirement is a challenge for sure, but it can be done with some serious planning and lifestyle changes. Just remember to stick to your plan and be disciplined. FIRE and Early Retirement is totally doable, you just need to be strong minded and make some sacrifices.