This girl is on fire….
July 2018 was when I first became hip to the FIRE movement. I had been scouring the interwebs to see which rewards credit cards were the best (I will tell you which ones I chose in a separate post) and some kinda way I stumbled onto a blog written by J.P. Livingston of The Money Habit. Read that blog post here.
By now you’re wondering what F.I.R.E. is. (If you have spoken to me at all since July then you already know!) F.I.R.E.=Financially Independent Retiring Early. Reading J.P.’s story about living and working in NYC and padding her bank account to call it quits at the ripe old age of 28 intrigued me. I needed to know more.
As I kept searching I found more and more info. I was led to people like Mr. Money Mustache, The Mad Fientist and Go Curry Cracker. They pointed me to what could be considered the Genesis of the retiring early movement. A book called Your Money or Your Life.
As someone who has always saved, I realized that I was missing a fundamental concept that was laid out plainly in the book for me. Retirement or Financial Independence isn’t something that you have to wait for.
What if you didn’t have to wait until you were 67 to enjoy the fruits of your labor?
I had always known that I hadn't planned to work until my mid 60s. I figured retiring at 50 was a reasonably achievable goal. Reading these books and blogs made me realize that it was very possible and that many people, armed with the knowledge and foresight had done it in their 30s and 40s.
While many of the people touting this movement happened to be high income earners, it is still possible to reach early financial independence on an average salary. The top expenses that need to be controlled are:
Controlling and lowering these expenses are essential if you're going to substantially improve your savings rate. Your savings rate is the percentage of your take home pay that you are saving or investing. For traditional retirement, you are encouraged to save 10-20 percent of your income. In early retirement, many proponents save upwards of 50 percent of their income.
Another VERY important concept that I got from these books was the impact of investing! As a former Finance minor, I thought I knew enough about personal finance to get by. Turns out I was stashing a ton of money…just in the wrong places! I was funneling money into my low interest rate savings account, as well as my Roth IRA and 401(K).
Don’t get me wrong, you should absolutely be investing in all of these vehicles if you have them available. But the biggest aha for me was that if I ONLY invested in those vehicles then I would have no choice but to wait until age 65 to access my funds. I was also missing out on possible investment returns by only having my money in a savings account.
It was at this point that I opened a taxable brokerage account to purchase low cost index funds. I currently have accounts with E*TRADE, Ellevest and Vanguard. Having a taxable brokerage account allows you to take advantage of stock market returns, while giving you the freedom to access your money whenever you need to.
While there are many great resources available on investing and retirement, one book that I really enjoyed and that was simple to read and understand was The Simple Path to Wealth. JL Collins compiled this book from letters that he had originally written to his daughter about his own financial journey. In it he details some of his favorite investments while laying out a plan for investing 50% of your income.
Since stumbling across these resources in July I can honestly say that I think about my finances in a completely different manner. I have dramatically reduced my monthly spending and even beat my savings goal for 2018. When I want to purchase something I am more inclined to ask if it is in line with my ultimate goal of early retirement.
Are you ready to get fired up?