I recently shared my Ultimate Guide To The F.I.R.E Movement where I broke down everything from what it is, to a broad overview on how to do it, and a discussion on whether or not you should (SPOILER: you should!). Today, I wanted to dive even deeper into the “how” of financial independence with the goal of retiring early. This post is really why I think everyone should jump onto the F.I.R.E. bandwagon. There is something for each of us to take from it.
Before we get into my steps to achieve financial independence so you can retire early, I want to stress the importance of a strong financial foundation. F.I.R.E. requires focus and motivation. A strong financial foundation increases the likelihood of achieving your goals.
To me, this means you have a clear picture and know exactly what is happening across all your financial accounts, including on your credit reports. You have an emergency fund, ideally you're clear of all revolving debts (credit cards) and working towards clearing installment debts (student or auto loan, mortgage). If you did notice something seemingly off on your credit history, like an inexplicable negative item, contact today's sponsor, Lexington Law. They specialize in credit repair and help drive the process of fixing your credit profile from inaccurate, unsubstantiated, or unfair negative items. You're at a greater risk for these types of negative items if you've been on military leave, recently divorced, or a victim of identity theft. You can get a free credit consultation by clicking here.
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Once you have your financial foundation set, it's time to make some money moves!
How To Achieve FIRE In 11 Steps: Financial Independence, Retire Early
1. Get out of debt
Remember, I just said you'd *ideally* be out of debt; not that you would be totally debt free. I don't think debt is any reason to hold off on your retirement planning. In fact, retirement planning can be the perfect motivator to actually tackle your debt quickly. It just may mean things take you a little longer to retire; but hey if you're retiring by 35 or 45, that's a few extra years? Check out my favorite debt repayment strategies here.
2. Change your relationship with money
Like I said in my first post on the F.I.R.E. movement, money mindset is the key! I went from chronically overspending to doing a no spend challenge that I thought would last 30 days, but ended up lasting 3 years because it felt so right. Read more about How To Stop Overspending Money here and how to do a no spend challenge here.
Part of changing your money mindset is understanding where you have limiting beliefs. Limiting beliefs sound like, “I'll never get a raise,” “Some people have the golden touch,” “There's no way out.” Any financial statement that implies the idea that you are not good enough or there is not enough money is a limiting belief. Right these down, ask yourself where they came from and dive deep. Often times, these beliefs are learned from our parents and community. They are passed down.
You can release these from your own reality by talking to people in your family, community, or online who are similar to you, but are proof that these statements don't apply to everyone. You become the sum of the 5 people you spend the most time with: so start surrounding yourself with people in the financial position you desire, and talk with them about how they have lifted and shifted their beliefs. Yours will begin to shift too.
3. Lower your housing cost
If you're following the 50/20/30 Guideline, housing should equal a little less than 50% of your take home pay; with F.I.R.E, I'd suggest it equates to less than 25%! I know it's aggressive, but F.I.R.E is aggressive friends. When I ran through a couple of examples of what it'd look like to live on $20,000 or $40,000 a year as a family of three, both required a significant cut in our housing (I'll be sharing that post in a couple of weeks! Subscribe to my newsletter so you don't miss the post!)
4. Stick to cars that are used and you own outright
Auto loans are the third largest form of debt in America and defaults on those loans have been rising according to a recent survey shared on Lexington Law! You can opt out of that narrative by owning your car outright. This helps you get out of debt, and removes a line in your budget so you can put that money towards retiring early.
5. Use rewards credit cards
Rewards credit cards give you the opportunity to stretch your dollar a little more. Basically, you earn either cash back or points and perks for spending. Each card has unique benefits and ways to earn said rewards. They should always (and only) be used responsibly, meaning you never charge what you can't pay off that day. Read more on What To Look For In A Rewards Credit Card here.
6. Cut back on food and grocery costs
Food is one of those areas that people tend to overspend. Whether it's shopping while hungry, not meal planning, or feeling tired and ordering for takeout, the food dollars rack in quickly. When my husband and I first started dating, we were on a pretty strict budget and I would tell people we spend $50 a week on groceries for two adults; many would freak out, “HOW?!?” That's why I shared my insanely detailed strategy on How To Save Money On Groceries Every Month On A Tight Budget. It really is possible to cut back on food and grocery costs, it just takes planning.
7. Ditch cable and subscriptions
If you really want to go aggressive with FIRE, cut the cable cord, get rid of recurring subscriptions like for music streaming services or meditation apps, and get back to how things were done back in the day.
Read a book; go for a walk, enjoy a free movie in the park, go to a friends house for your favorite show each week. You can get creative so you're not depriving yourself of these luxuries entirely; and you may even find that your mood and energy gets better as you connect more deeply with your community and friends. Technology can have a funny way of driving loneliness.
If you're not quite ready to cut the cable cord, you can try calling the cable company to negotiate a lower rate. That's just one suggestion from this article on 5 ways to cut expenses from Lexington Law.
8. Lower tax liability by maxing out tax deferred options
We all have to pay Uncle Sam, but those who are truly financially savvy understand how to minimize their liability. The first year I started my company, I “took home” the same amount of money I did when I had a 9-5 but I did not earn the same amount of money before taxes. You see, I earned around $1,000 less than the tax bracket break and because of my lowered income, I got to take advantage of subsidized insurance plans.
Tax deferred options can include a 401k, 457, 403b, or IRA for retirement, an HSA for tax deferred savings on health related costs, or a 529 plan for tax deferred money towards educational costs.
9. Increase your income
The F.I.R.E. Movement will definitely require most people to increase their income if they truly are aiming to retire between 35-45 years old. I feel like this isn't so crazy, as many people don't seem to have hobbies anymore, and everyone has a side hustle. In fact, you can learn how to start a blog here (LINK).
10. Invest with low-cost index funds
Low cost index funds aren't as scary as they sound. They are basically an easy way to invest money for a low fee in an index, instead of an actively managed fund where you'd pay a professional to pick stocks for you, which comes with higher management fees. In fact, it's just one of the ways that Lexington Law recommends creating more passive income, read more here.
11. Define your own version of the 4% rule
To bring this full circle from my last post: just because you're earning money, doesn't equal actually retiring early. You need a plan. Take some time to actually come up with your target number. This way, your money is accounted for and the likelihood you'll stay motivated towards your goal increases.
If you just keep saving and saving with no destination in mind, you can end up creating a “lack” mindset where you feel like you never have enough or know how to enjoy your money. Simply taking the step of defining your target, is a step on the F.I.R.E path.
I'm curious, have you thought about retiring early? What do you see as the biggest barriers to achieving FIRE? If it feels big and overwhelming, remember to start with baby steps. Start by doing a weekly check-in on all of your accounts so you can learn what is going on. Pull your credit reports and contact Lexington Law by clicking here if you find any suspicious or unfair negative items. Choose a debt repayment strategy. Select one expense to start cutting. Like I said in my last FIRE post, it is aggressive, but there is something for every single person to take away from it, no matter what your financial situation is.
A baby step is still a step!
Ultimate Guide To The F.I.R.E Movement: What It Is, How To Do It, + Should You?
What Is A Sinking Fund? Why You Need One + How To Set It Up: A Complete Guide To Sinking Funds
19 Tips For Affordable Living On The Fly
List of 11 Steps To Achieve F.I.R.E [Financial Independence, Retire Early]:
Get out of debt
Change your relationship with money
Lower your housing cost
Stick to cars that are used and you own outright
Use rewards credit cards
Cut back on food and grocery costs
Ditch cable and subscriptions
Lower tax liability by maxing out tax deferred options
Increase your income
Invest with low-cost index funds
Define your own version of the 4% rule