Too often we put our passions to the side, instead focusing on work so we can earn enough to pay off our debt and taxes. However, a recent trend, known as the FIRE Method (Financial Independence Retire Early), has been catching on. These extreme savers live significantly below their means, saving every penny they can to secure their financial independence and begin their retirement decades before their peers.
People who follow the FIRE Method are making sacrifices, often major ones, in their early years. They have front loaded their financial constraints in working towards a big payoff in the future. Always keeping in mind the end goal of financial independence, they think twice about buying the new car just to keep up with the neighbors. They may be limiting themselves today, but the payoff in the very short future makes the cost well worth it. Here are the basic principals of the FIRE Method:
Step 1 – Get a Handle on Your Money
The practice is simple in theory – spend less than you earn. But when it comes to budgeting, some of us have more trouble than others resisting the temptation to buy. The more money you can save, the better. By eliminating discretionary purchases and putting that money toward paying down debt, you move closer to achieving financial independence. Tracking your spending habits is key to controlling your spending. Creating a solid budget and spending plan will help you prioritize – check out our Jacobi Wealth Dashboard as a tool to track your spending and create budgets to keep your goals in mind.
Step 2 – Eliminate Excess
Once you can see where your money is going every month, it’s easier to make cuts to your spending. It may be difficult to turn down those fancy dinners and luxury vacations, but once you start to see your savings grow the motivation follows. Start small – bring your lunch to work, cut the cord on your cable company, cancel that satellite radio subscription. As you adjust your budgets, the places you can eliminate excessive spending will be more obvious.
Step 3 – Build Income
At some point you won’t be able to cut anymore expenses so to reach your financial independence goals you will have to start earning more money. Ask for a raise if it is deserved or look for another job. Add another income stream through the gig economy – drive for a ride share or sell those unnecessary possessions online. Find ways to turn your hobbies into an income generating stream to fund your lifestyle.
Step 4 – Invest
Once you have your emergency expenses covered and still have excess savings, add money to your investment accounts. Take advantage of a company retirement plan or start one for yourself. By investing in the stock market, you are taking on inherent risk and could face some loss, but you are also giving yourself the opportunity to grow your savings and reach your goals faster. Talk to a member of the Jacobi Team on getting started or reviewing your investment plan.
Continuing along the path towards financial independence in such an aggressive way can be stressful and definitely isn’t for everyone. However, those who follow the FIRE Method and have reaped the benefits of saving enough to not have to get up for work every Monday morning will say the sacrifices were well worth it. Having financial independence means having the freedom to live a life that doesn’t revolve around money. Whether you are looking to become an extreme saver or just making sure you are on the right path to achieving your financial goals, give us a call and check out our tools to help you get started.