How much money should I save to retire early? (FIRE Movement)
How to achieve Financial Independence, Retire Early(FIRE)?
Here are rich people do, 8 simple steps to speed up your FIRE life.
①MINDSET
Throw away bad habits »
Have you discovered that sometimes we don’t need to buy new stuff at all, but there will always be a pair of new shoes or a bag in the cabinet, or some new products that have never been used before?
People often use vanity to prove their success. We spend on that new stuff to satisfy ourselves, even if we are not very rich. But in fact, these are short-term satisfactions, which disappear very quickly.
Can you try to change the satisfaction of shopping, games, parties, and watching TV into good habits of investment, reading, exercise, and meditation? And always have an optimistic and positive financial mindset.
People always say that：
“I can not become rich unless I win the lottery.”
“I am lazy to manage money.”
“Investment is too difficult, I can not afford it.”
“I am poor.”…etc
Is it possible to throw away all of “ Impossible”?
Believe in yourself and believe that your resilience can achieve financial freedom, and changing your mentality can help you move towards smart financial management.
②PROBLEM-SOLVING
Facing your problem»
Write down all the problems and find solutions. On a piece of paper, write down all of your problems. You can clearly see all the problems and face them, and start to think about what obstacles prevent you from moving forward.
“WHY can’t I find a good job?”,
“WHY can’t I save a lot of money?”
“WHY don’t I have enough time?”
“WHY don’t I have enough money?”…etc
Everyone will face many WHY in their lives. The key point is how to solve these WHY after you know them!
It is okay to ask for help! If you can’t handle or figure out the problem by yourself, just ask someone for help! Seek opinions from professionals, colleagues, friends, and family members, absorb their ideas and choose the solution that suits you from the suggestions of others.
When you have the courage to face your problems, every positive action will eliminate your worries, and your life will get more confidence.
③BUDGETS
To achieve a FIRE life, you must have the habit of recording and tracking every expenditure. If you don’t keep tracking, how do you know your monthly consumption? How do you know where most of your money is spent? How do you know how much money should you save for a lifetime? If you hate to track your expenses, you must overcome it.
④FIRE NUMBER CALCULATION
4% rule
Annual consumption amount * 25 = your FIRE number
Calculating the FIRE number is a very powerful financial management action. Even if you have not thought about early retirement, this number can let you know how much money you need to save for retirement.
Some people spend $40,000 a year, some need $50,000 a year, some have a family, some are single, some are more luxurious, and some are more conservative, so everyone’s FIRE number must be different. You don’t need to compare it with others.
For example:
If you spend $20,000 per year from your retirement account, you need to have $500,000 in your retirement account. ($20,000 x 25 equals $500,000.)
When you have the concept of this number in your mind, you can execute your own financial planning.
Some people may find that their current savings have already reached FIRE numbers! Congratulations, then.
However, most people see their FIRE number, they might think about how it is possible to save this number? The next actions can bring you closer to FIRE life.
⑤REDUCE EXPENSES
Pay yourself first
Check all the expenses in your Balance sheet, and which expenses are not so important and can be reduced. It is recommended to start with the largest expenditure item and think about how to reduce expenditure.
For example, rent or mortgage, how can you save more money by renting out the rooms? If you have two rooms, can you live in the cheaper/small one by yourself, and rent the better one at a higher price? Would choose an apartment without an elevator be much cheaper than a building with an elevator?
For example, a car, do you really need a luxury car? Do you really need a large new car? Maybe change to a small car or a used car or take public transportation?
Some others, such as the annual fee for Netflix? Annual fee for gym?
If you can challenge yourself and save 2% of expenses every month, you will save yourself 24% of expenses throughout the year.
Have you ever read the book： Rich Dad Poor Dad
Rich dad said that when you receive your salary at the beginning of each month, don’t rush to pay the bills, “Pay yourself first. My asset column is far more important to me than the government.”
What if I have no money left to pay the bills after?
Rich dad said：“The pressure to pay becomes your motivation. If I had paid yourself last, you would have felt no pressure, but you would be broke. ”
This pressure of payment will become your motivation to make more money, and you will start to think seriously about how to do it to generate more income to pay these bills. Or, is my debt too much? What can I do to reduce the bills?
⑥INCREASE INCOME
What to do if the salary is not enough?
When you are on your way to FIRE life, you may often feel that your salary is too low. What should you do? What I want to say is that your full-time job is not the only way you can make money. If you want to make more money, you must choose a company with a promotion or find a side hustle to increase your income.
For example, Some people like to drive can be a UBER or deliver, if you ave real estate can do AIRBNB, you can sell second-hand items, you can draw and sell original stickers, You can write books, you can do social media, you can sell professional photography photos online… etc.
You can use your creativity and professional skills to create additional income.
⑦SELF-EDUCATION
You don’t manage money, money doesn’t care about you!
While making money, you need to know how to store the money in the right place so that money can make more money. You need to understand how to use the money, and understanding financial knowledge will help you to effectively use compound interest to roll your money.
Many people do not understand financial products and rely on others to operate their assets, such as handing over most of the money to insurance companies or some brokers. Usually, they will charge relatively high management fees, and the products they choose may not be suitable for you.
Understand investment accounts and investment products.
You can learn by yourself through reading financial books, buying professional courses, watching YouTube channels, communicating with people, and researching online.
For example, in Canada, there are TFSA tax-free accounts, RRSP retirement accounts, RESP education savings accounts… and so on.
As long as you are willing to manage money, the money will naturally help you create good returns.
⑧INVESTMENT
Having a passive income is the key!
The most important key to achieving FIRE life is investment, which is to create passive income.
The rich invest money.
You know that Bill Gates has been the world’s richest man for 13 consecutive years. It’s not because of how high his salary is, but because he invests most of his income.
There are many sources of passive income, such as: investing in mutual funds, stocks, bonds, ETFs, real estate, affiliate marketing, personal brand products, renting your car, developing an APP, making online courses or writing an e-book… etc.
Use the money from your reduced expenses and increased income to make more investments. If you don’t want to spend most of your life making money, then you have to let your money work for you. The money will continue to generate more cash flow even if you are sleeping or stopping work. So it is also called passive income, which is the power of an investment.
Some people will choose to open a separate account, the money in it can only be deposited in, not withdrawn, and compound interest rolls over until you achieve your financial freedom figures. This is your FIRE life account, which is the early retirement account.
Let me give you an example： How value investing will help you create more cash flow:
If in 2000, instead of buying 5 pairs of NIKE shoes, you saved money on investing in NIKE stock, which is about $500. Until 2020, your investment of $500 has helped you make a profit of $12,500, which is about 2400% high returns!
You can buy a lot of NIKE products by investing the money you earn. And if you continue to invest the principal regularly for the past 20 years, the return amount will be more than just $12,500.
This is the power of value investment!
All in all, you must choose an investment product that suits you, and then start investing. The sooner you start your financial plan, the sooner you can achieve financial freedom and early retirement.
Rich Dad Poor Dad book: Amazon
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