How to start your FIRE journey, according to a financial planner


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The FIRE (financial independence, early retirement) movement has gained prominence over the years as more and more people are drawn to the idea of ​​having enough money to give them the freedom to spend their time as they wish, without being at the mercy of a salary and an employer.

But the movement also has a reputation for being overwhelming and even daunting since many followers often go to extreme measures to save 50% to 70% of their income each year to achieve this goal. By comparison, financial professionals generally recommend that you save 15% of your income each year in order to retire at the traditional age of 65.

While each person certainly has their own path to early retirement, there are some common tips that can apply to any FIRE newbie. Below, Select received four tips from Michael Powers, CFP and founder of Manuka Financial, which specializes in helping people retire early.

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1. Make sure you have your financial bases covered first

One of the most important steps to take – even if you’re not actually pursuing FIRE – is to make sure you’ve mastered some of the financial basics: emergency fund set up to help you cover unexpected expenses (medical bills, car or home repairs, etc.) without incurring additional debt. You should have paid off any high-interest credit card debt, while still having the option of continuing to make monthly payments for any loan debt like student loans or a mortgage.

Those who pursue FIRE may find that they will need to save and invest up to 70% of their annual income to achieve their goals. According to Powers, taking a look at your overall financial picture can help you know where you are now and where you need to be.

“Try to learn more and strengthen your own financial situation,” he says. “Make sure you have an emergency fund so you can keep paying off your high-interest debt. And look at your assets, liabilities, income, and expenses so you can really focus on improving of your financial plan.”

If you haven’t tracked your spending yet or have no idea where your financial starting point is, using a budgeting app like Mint or You Need A Budget (YNAB) can help you fill in some of the boxes. of these shortcomings. They connect to your bank accounts, credit cards, loans, and investment accounts, automatically tracking every dollar so you know exactly where your money is going.

Once you have an accurate picture of how much money you’re bringing in, how much you’re spending, and how much you’ve saved or invested, you can start thinking about areas where it might be best to cut back on spending – or increase your income – to begin with. make FIRE a reality.

2. Determine your why

“One of the most important things you should focus on at the start of your FIRE journey is figuring out your why,” says Powers. “Why do you want to retire early? Is it for more flexibility? Is it to spend more time with your family? Is it to travel? Is it to do something completely different from what you currently doing?”

Sure, Thinking about your goals can be an effective way to stay motivated throughout your journey, but those goals can actually alter the FIRE strategies you implement. Powers also claims that when you think about why you want to achieve FIRE, you may find that the goals you want to achieve can actually become a reality sooner than you thought possible – without having to spend very many years. to save every dollar and feel like you. make a lot of initial sacrifices.

“For example, if you’re pursuing FIRE because you want flexibility while your kids are still young, maybe you can make some adjustments to your budget so you can work part-time now,” Powers says. “Or, maybe you can move on to a less demanding job that doesn’t require you to work long hours. Consider if there are other actions you can take in the shorter term that can get you to the same objective.”

3. Identify your needs versus your wants

The FIRE movement has traditionally been associated with an extremely low rate of spending and an aggressive rate of saving and investing. For many people this is much easier said than done as there are many gray areas in life where it’s not so easy to say “no” to spending money to save. This realization can leave many people exhausted and even isolated.

But Powers says that over the years, movement has made room for a little more balance — and balance can still lead to achieving your goals.

“I think the people I’ve seen who have been successful in this are people who can easily identify needs versus wants so they can focus their spending on the things that generate happiness and joy in their own lives,” says Powers.

In his book, I Will Teach You To Be Rich, Ramit Sethi explains this concept of conscious spending, which states that it is possible to spend as much as you want on the things that make you happy as long as you ruthlessly reduce your spending. . about things that don’t interest you. This will allow you to create your version of a “rich life”. This same idea applies here.

Saying no to everything – including the things that bring you happiness – can cause you to feel miserable on your FIRE journey, and in extreme cases it can even cause you to lose close ties with the people you love. But by creating space to spend on the things that bring happiness, whether it’s coffee from your favorite store or the annual family vacation, you maintain your joy and stay motivated to retire early.

4. Determine where you should save and invest your money

There are many different economies and investment vehicles you can use to set aside money for retirement, and they all have different tax implications, contribution limits, and distribution rules. This is where a financial planner can definitely help you out to make sure you’re saving and growing your money in the right places.

For example, some people prefer to be hands-on with their investments, setting up brokerage accounts at big companies like Fidelity or Charles Schwab. Those who prefer to be more passive can have a robo-advisor like Wealthfront or Betterment set up their portfolio for them, based on their risk tolerance, time horizon and investment goals. A financial planner can guide you towards the best approach and strategy. For many beginners, this may mean starting out by putting your money in index funds, for example. Index investing lets you put money into the biggest US companies with low fees and minimal risk.

When it comes to certain tax-advantaged retirement funds, a financial planner can help you decide based on when is the best time for you to pay a tax bill: now, based on your current income, or the future, depending on your future income. This can help you decide between a Roth or a traditional IRA.

A financial planner can also help you with other aspects of your financial life that play a part in your FIRE journey, such as how much home you can afford, how to pay for your child’s college education, or how to fund your own. higher diplomas while remaining on track for the FEU.

To get started, you might consider checking to see if your employer offers free financial planning services as a company benefit. If that’s not an option for you, you can use a tool like Zoe Financial to match you with a financial planner who specializes in the areas that matter most to you.

At the end of the line

While there are many obvious appealing elements of the FIRE journey, it can also be an overwhelming and daunting move. Covering your financial basics and clarifying your goals are two important steps to take when you begin to pursue this journey on your own.

From there, it will be easier to set up your spending to create a balance rather than just a restriction. And, along the way, leaning on a professional can help you plan the best way to save and grow your money.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.


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