You’ve probably come across this already, but if you haven’t, you should.
The “FIRE” movement has been growing at a rapid pace in recent years – for good reason. The key aims, Financial Independence (FI) and Retiring Early (RE) are things everybody wants, and are also things that most people can achieve, if they want to.
What is financial independence?
Put simply, it’s having enough money that you don’t have to work for money anymore. Note that this doesn’t necessarily mean that you can’t work – the whole point is that you can do whatever you like, without “needing” to do something that you perhaps don’t actually want to do (i.e. work).
The amount of actual money you need to be financially independent will depend on the lifestyle you want, the location(s) you want it in, and how smart you are with managing your money – but the effect and the feelings are the same for everybody. You’re either financially independent, or you’re not. Simples.
Once you reach financial independence, you can retire – if you want to. Or at least retire from doing things that you’re only doing for the money!
Of course you’ll still need money – and this is where the financial planning comes in. You’ll need to generate enough income to live, and ideally you’ll want to do that without reducing your wealth (otherwise you may run out of money and therefore not be financially independent anymore – which is always a problem, but an even bigger problem if this happens when you’re old and can’t work anymore).
Generally speaking, the retirement age in the most developed economies is creeping upward – partly because people haven’t planned enough for their own retirement, and partly because governments keep increasing the age that they will start paying the basic minimum state pension. If you don’t want to keep working until you’re 70 years old, you need to do something about it – now.
How much money do you need, to be able to retire?
We’ll cover this in more depth in future blogs – but as a general rule, you’ll need 25x your annual spending. So if you spend $20,000 per year, you’ll need $500,000 saved up and invested. Why? Because without going into the full details at this stage, you can safely withdraw around 4% from your savings each year without reducing your overall wealth (assuming it’s invested properly into something relatively low risk). This is called the “safe withdrawal rate”, the approximate amount you can spend without ruining your financial setup.
This does of course mean that one of the easier ways to achieve financial independence is simply to reduce your spending – by spending less money, you don’t need as much of it. We’ll have some blog posts on that too.
How to actually achieve financial independence and retire early
If you thought there’s one quick magic way of doing this that we could fit into a couple of paragraphs, you’re wrong. Sorry. The way to do this is much more nuanced than one or two things – it’s several things, and most importantly, it’s how those things fit together. Therefore, we’ll also have some posts about how to save and invest your money, because if you simply leave it in a bank account, its purchasing power (and therefore your wealth) is basically guaranteed to steadily get lower and lower over time. Use it or lose it!
If you want to be financially independent – and be able to retire early – follow this blog and our team of nomadic financial specialists will help you get there!