The Seven levels of Retiring Early with FIRE
Want to join the Financial Independence Retire Early (FIRE) Movement? The plan outlines how people of virtually any age can save significant chunks of their income with the mindset of being extremely frugal and budget savvy. And it’s gaining steam.
Supersavers put away 50% or more of their income and live on what’s left. Some are even avoiding their favorite coffee shops and saving up to $2,000 a year! Having this mindset now will provide more choices down the road, on how and when you’d like to retire. The journey takes time and commitment and includes a 7- level financial freedom roadmap that starts at clarity, and then builds to abundant wealth:
Level 1: Clarity. It’s important to know where to start. Take stock of your financial situation— how much money you have, owe, and what your goals are.
Level 2: Self-Sufficiency. Stand on your own two feet financially. Earn enough money to cover your expenses without any help from family or friends. At this level, you may be living paycheck-to-paycheck or taking on loans to make ends meet.
Level 3: Breathing Room. At level 3 you have money left over after living expenses to put toward goals such as building an emergency fund and investing for retirement.
Level 4: Stability. You’ve paid down high interest rate debt such as credit cards and stashed away six months’ worth of living expenses in an emergency fund. Building up these savings ensures you’re safe from unexpected circumstances like the loss of a job.
Level 5: Flexibility. At level 5 you have two years’ worth of living expenses saved and the ability to think about your money in terms of the time it can buy you. For example, taking a year off from your job if you wanted to.
Level 6: Financial Independence. Once you achieve this level you can live solely off of investments. You generally have one of three things: either a large sum of money in an investment portfolio generating interest, rental properties where the cash flow covers living expenses, or both.
Level 7: Abundant Wealth. Congratulations. At this level you are financially independent and can live off your portfolio income. You could rely on the “4% rule” — a retirement rule of thumb where an investor can safely withdraw 4%, adjusted for inflation from a balanced portfolio of stocks and bonds each year.
If you’re willing to shift your spending and saving priorities and want to have retirement choices, the FIRE movement might be a great strategy for you. It’s important to know your numbers though— the rate of return you need to average, what age you want to retire at, and how much you need to live comfortably in today’s dollars.
Good financial habits pay off. An NIHFCU GreenPath Financial Wellness counselor can share some “tried and true” facts when it comes to your finances. They can help you gain a better understanding of your financial picture and what steps to take to improve financial wellness. Get a complimentary review today.
