The FIRE (Financial Independence, Retire Early) movement has become widely popular. More and more people are looking for ways to save money and take an early retirement. But how is this possible? This FIRE retirement calculator will help you understand early retirement in Northern Virginia.
This set of principles involves extreme saving, frugality and generating a passive income to fund early retirement. However, early retirement doesn’t have to be the end goal. Furthermore, it doesn’t necessarily have to involve a minimalist approach.
More than anything, it is about financial independence and giving yourself the ability to choose what you want to do. That may be retiring early, working part-time, switching careers, or pursuing hobbies that you can now afford.
Goal of FIRE
The FIRE movement is about helping people achieve financial freedom and control over their lives instead of depending on a 9-5 income to survive. The ultimate goal is traditionally to retire early and use your savings and investments to cover your living expenses. However, this has become broader over the last few years.
You have likely heard about people living very frugally, saving as much as possible, and investing money so that they can retire in their 30s. These people often save 50% or more of their income in order to retire early. But this isn’t the only way to use the principles of the FIRE movement.
People generally emphasize the financial independence aspect of FIRE instead of just retiring early. What is financial freedom? Well, simply put, it is having the freedom to make decisions that are not dictated by the need to earn money. Applying these principles helps a person shift their perspective on money and work. This forces you to think about what is important to you, and how you can reach a position of financial freedom.
Many of the principles of FIRE, like conscious spending and saving, are well known. However, the way people choose to enact these in their own lives and their goals, may differ greatly.
Types of FIRE
Over the years, several variations of FIRE have developed. These include:
- This type focuses on a minimalist and “lean” way of living. This allows you to save as much money as possible and retire early. Essentially, you live on the barre minimum and save everything else. You would retire early and live modestly in retirement.
- This approach has the same goal as LeanFIRE but favors a less frugal and more indulgent approach. Following this approach requires less sacrifices in current spending or in retirement. However, you will need to save more to fund this lifestyle and it may take longer to achieve your goals.
- This approach focuses on saving enough money to retire from your main job early. However, instead of not working at all, people may use their financial freedom to work a part-time job, do freelance work or pursue their dream career. This approach gives you the opportunity to work for pleasure, rather than necessity.
How to Get Started
First, you need to make a plan. List your goals and decide what you want your life to look like when you retire. Consider your finances, your income, and what standard of living you want. This will help you decide how much you need to retire. How old do you want to be when you retire? How will that affect the plan you have and the things that you want to do in your retirement?
Next, you need to reduce your spending. Start by reviewing your monthly and annual spending, including bills, regular expenditures for gas, groceries, etc. as well as one-off expenses like vacations and gifts. Find areas where you can make cuts to reduce your spending. This could be simple things like cutting out Starbucks coffee or cancelling subscriptions. If you don’t have one you should also consider building an emergency fund. This will help you through any financial difficulties and help you avoid debt.
Now you can work on increasing the amount you save. It can seem intimidating, especially if you are new to saving, but start small and build up from there. If your current job has a matching 401k program you should be maxing out the contribution to gain the most benefit from the program. It’s a great way to save your own money and to add to your savings through the company benefit program. It also helps to set small goals and gradually increase these. These small wins help you stay motivated and on track to reach your goals.
To reach your goals faster, you can look for ways to increase your income. This could be through advancing your career or getting a second job or side work as a consultant perhaps. Additional income will help you reach FIRE sooner if you can stick to your budget. Sometimes, when income increases, so does spending. Avoiding this pitfall will help you reach your savings goals quicker. When incomes increases are viewed as additional dollars to save , not spend, FIRE can happen quicker.
Finally, you should consider investing your savings. Investments help generate passive income, meaning your money continues to work for you after you have earned it. Investing your savings will accelerate your passive income growth. Many people believe that passive income should be the goal of anyone aiming for financial independence. You can speak to a financial advisor to learn more about your investment options.
FIRE Retirement Calculator
This entire plan hinges on you saving enough money to live on without needing to work full-time. Generally speaking, you will need 25-30 times your annual expenses. This savings should then be invested to provide you with sufficient income in retirement. The exact amount you need to save will be unique to you, your situation, and your goals.
You will also need to consider how the market might change, how tax rules might evolve, as well as the reliability of any investments. Because there are several unknown aspects, it is better to estimate high and give yourself a financial cushion, should circumstances change.
FIRE in Northern Virginia
The benefits of FIRE are undeniable. Who doesn’t want financial freedom and the chance to retire early? While it does require some sacrifice, how much is up to you. Obviously, the more you save the faster you reach your goals, but ultimately it is your choice how much you sacrifice. And it is never too late to start. If you are interested in learning more, please contact Argent Bridge Advisors today!
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.
Calculators are provided by an independent third party and are being made available to you as self-help tools for your independent use and are not intended to provide investment advice or be representative of actual results. We do not guarantee their applicability or accuracy in regards to your individual circumstances. The determinations made by these calculators should not be construed as guarantees or projections. Moreover, the reasonableness of certain information may change over time because of changes in tax law, investment trends and your personal circumstances. The information contained here is based on current law and has been obtained from sources believed to be reliable, but we do not guarantee its accuracy. Investment results can vary considerably depending on the type of securities involved, general market conditions and other factors. It is important that you periodically review and update your plans. Raymond James does not provide tax or legal advice. You should contact your tax or legal advisor concerning your particular situation. All investments carry a degree of risk, and past performance is not a guarantee of future results.