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

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The fire (financial independence, early retirement) has gained greater exposure over the years as more and more people are attracted to the idea of ​​having enough money to guarantee them the freedom to spend their time as they wish, without being at the mercy of a paycheck and an employer.

But the movement also has a reputation for being overwhelming and even intimidating, with many supporters often going to extreme lengths to save 50% to 70% of their income each year to reach that 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 unique journey to early retirement, there are nonetheless some common tips that can apply to any FIRE beginner. Below, Select received four tips from michael powersCFP and founder of financial manukawhich specializes in help people retire early.

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1. Make Sure You’ve Covered Your Financial Bases First

One of the most important steps you need to take, even if you’re not really looking for FIRE, is to make sure you have some of the financial basics: Have a emergency fund to help you cover unexpected expenses (medical bills, car or home repairs, etc.) without incurring additional debt. you should have some high interest credit card debt paid, as well as having the ability to continue making monthly payments for any loan debt such as student loans or a mortgage.

Those searching for FIRE may find that they will need to save and invest up to 70% of their annual income to reach their goals. According to Powers, taking a look at your financial picture as a whole can help you be clear about where you are right now and where you need to be.

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

If you haven’t been yet track your expenses or have no idea where your financial starting point is, using a budget app I like mint or Need a budget (YNAB) can help you fill in some of those gaps. They connect to your bank accounts, credit cards, loans and investment accounts, automatically track every dollar so you know exactly where your money is going.

Once you have an accurate idea of ​​how much money is coming in, how much is being spent, and how much is being saved or invested, you can start thinking about areas where it might be better to cut back on spending, or increase your income, to begin with. making FIRE a reality.

2. Determine your why

“One of the most important things to focus on in the early stages of your FIRE journey is determining your why,” explains Powers. “Why do you want to retire early? Is it flexibility? Is it more time with family? Is it travel? Is it doing something completely different than what you’re currently doing?”

Of course, thinking about your goals It can be a powerful way to stay motivated throughout your journey, but these goals can actually change the FIRE strategies you implement. Powers also says that by thinking about why you want to achieve FIRE, you may find that the goals you want to achieve can become a reality sooner than you thought possible, without having to spend many, many years saving every dollar and feeling like yourself. They are making a lot of sacrifices in advance.

“As an example, if you’re looking at 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,” says Powers. “Or maybe you can transition to a less demanding job that doesn’t require you to work long hours. Determine if there are other actions you can take in the short term that might get you to that same goal.”

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 investment. 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. Realizing this can leave many people feeling exhausted and even isolated.

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

“I think the people I’ve seen that have been successful in this they are people who can easily identify needs versus wants so they can focus their spending on the things that drive happiness and joy in their own lives,” explains 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 spending on the things that don’t matter to you. Doing 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 make you happy, can make you feel miserable throughout your life. fire tripand, in extreme cases, it can even cause you to lose close connections with the people you love. But by creating a space that allows him to spend on the things that fuel happiness, whether it’s a coffee from his favorite store or those annual family vacations, he keeps the joy out of it and stays motivated to retire early.

4. Find out where you should be saving and investing your money

There are many different savings 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 he can definitely give you a hand to make sure you’re saving and growing your money in the right places.

For example, some people prefer to be practical with their investments, set up brokerage accounts in renowned firms such as Fidelity or charles schwab. Those who prefer to be more non-interventionist may have a robo advisor I like versus wealth or Improvement set up your portfolio for them, based on their risk tolerance, time horizon and investment objectives. A financial planner can help guide you to the best approach and strategy. For many newbies, that may mean starting out by putting your money in index funds, for example. Index investing allows you to invest in the largest companies in the US with low fees and minimal risk.

When it comes to tax-advantaged retirement funds, a financial planner can help you make a decision based on when it’s best for you to pay a tax bill: now, based on your current income, or in the future, based on your current income. based 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 role in your FIRE journey, such as How much house can you afford?excuse me pay for your child’s college education or how to finance your own advanced degrees while staying on track for FIRE.

To get started, you might consider checking to see if your employer offers free financial planning services as a company benefit. If this is not an option for you, you can use a tool like financial zoe to be assigned to a financial planner who specializes in the areas that concern you most.

Bottom line

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

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