Financial Independence Retire Early: Everything you need to know about F.I.R.E. Movement

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    Is retiring at 55 too early? Is retiring at 70 too late? Well! Such questions start to arise in the mind of every worker who dreams of a comfortable and gloried lifestyle as an elderly. Financial Independence Retire Early movement is a plan that supports individuals in implementing their retirement early without compromising on their financial independence. 

    Financial Independence
    Image credit: The Law Offices of Martin Taller

     When it comes to retirement, people think and plan beyond their reach. However, the whole retirement system out there prevents individuals from making luxurious lifestyles out of their plan. However, the Financial Independence Retirement Early or F.I.R.E. Movement has been a “rescuer” plan. Hence, if you are thinking of planning for early retirement, this reading will help you achieve a comprehensive understanding of the F.I.R.E. Movement and every potential fact that you must know. So, let’s get started with a brief preface to Financial Independence Retire Early: 

    What is Financial Independence Retire Early? 

    To begin with, as the term suggests, the Financial Independence Retire Early Movement expresses the idea of “retiring before the traditional age of retirement with financial stability for life.” As tempting as this plan appears, it transposes 70% of one’s income to retirement savings over the working years. In India or the United States, the average age of retirement is 65 years. However, more often than not, people expand their working capacity to 70 or 75 to achieve the lifestyle they desire to adopt during retirement. But, when the actual time comes (retirement after 75), they are not physically strong enough to find joy by visiting places or spending on luxurious things. Because, to be honest, everything looks excellent and enjoyable at its timeline. 

    Image credit: Bloomberg.com

    Thus, the Financial Independence Retire Early calculator greets the concept of retiring early with 70% of total income multiplied by the number of years the individual had worked as an R.O.I. or return on investment. 

    For the most part, F.I.R.E. is not an official retirement plan that you will find at your company or third-party money management or insurance companies. Instead, Financial Independence Retire Early UK is a self-applicable plan that has received a promotion through a publication in 1992 called “Your MONEY or Your Life.” 

    Now that you know what F.I.R.E. is in reference to, it can be challenging to figure out how this movement works? The reason being, saving up to 70% of annual income per year is a tough job. So, without any further ado, let’s begin learning how the Financial Independence Retire Early plan works? 

    How does it work? 

    Joe Dominguez and Vicky Robins are the authors that embraced the publication by drafting a FIRE plan in their book. The authors narrated that colligating or contrasting one’s daily expenses and working hours against the entire hours in one’s lifetime (let’s suppose 100 years {in hours}) permits the worker to figure out whether a “buy” is worth it or not. As brilliant as this idea appears, a countable percentage of viewers have remained confused in this context. Hence, here’s a comprehension: 

    Let’s suppose a worker earns $1000 daily. According to the F.I.R.E. movement, he will be required to save up to $700 per day out of what he deserves. Moving on, F.I.R.E. is a contrast between daily working hours and daily expenditure against lifetime hours. To mention it directly, the worker’s annual income will be 36,5000 USD. For financial Independence, Retire Early, 255 500 USD will go to his yearly savings

    Yet, the idea of calculating it can be complex. So, here’s how you can use a calculator for F.I.R.E.:

    How to use the Financial Independence Retire Early calculator? 

    To begin with, a financial independence retire early calculator decides whether you will be able to acquire the desired lifestyle after retirement or not. There are multiple websites on the world wide web that allow you to do so. MoneyUnder30 is a prominent FIRE calculator. Indeed, the Financial Independence Retire Early calculator by MoneyUnder30 offers its users to calculate the exact amount of savings they will require in order to retire early with enough money to manage financial stability throughout the rest of their lifetime. 

    STEP 1: Calculate and Enter Annual Income and Expenditure

    First of all, in the age column, enter your age. Now, move on to the next column, where you are supposed to type the after-tax annual income. Here, yearly after-tax income is required because when taxes are deducted, a countable amount of money is eliminated from one’s revenue. In return, the worker gets benefits from the Government’s end. 

    retire early
    Image credit: Economic times

    In the Yearly Expenditure or Cost of Living, usually, users add up massive expenditures like rental, home loan instalment, Car instalment, etc. They leave out non-giant spending that adds up to daily expenditure such as food, conveyance, regular purchases like groceries, petrol or diesel, etc. When all these small expenses add up, they acquire up to 10% to 20% of one’s annual income. Thus, it is recommendable to count them in. 

    STEP 2: Investment Details

    To achieve extra money in the form of return on the “money not in use,” investment is the best way for employees or workers to save. Therefore, it is also a part of FIRE savings. So, first, enter your investment portfolio. Meaning, initial money amount that you have invested. Further, type the amount that you contribute to your initial amount each year. At last, enter the interest rate that you have been receiving. 

    STEP 3: Current Savings

    One of the best parts of Financial Independence Retire Early Movement is that it covers all four factors that manage an individual’s daily economy. These are income, expenditure, investment, and savings. In the next column, enter the monetary amount you have put aside in the form of protection, whether in bank or cash in hand. 

    Image credit: Global Finance Magazine

    Further, in the next column, enter the income percentage that you transfer to your savings account each year or month. At last, enter the return rate. 

    STEP 4: How much do you desire to spend annually when you retire? 

    Now, this last step makes the results much more confident. For example, if you plan to spend not more than 50000 USD per year after retirement, including taxes, the Financial Independence Retire Early Calculator will give you an estimate. 

    Lastly, tap on the “Calculate” button. As you do so, you will be able to see two results:

    • FIRE Goal – meaning the money you must-have in your current account at the age of retirement.
    • FIRE Age – For example, 40. 

    The most significant part of using a FIRE calculator is that it gives you a rigid goal to rely on. 

    Categories of Financial Independence Retire Early Plan Takers

    To begin with, not all the F.I.R.E. movement followers are hell rich or have a very stable job. One thing that is typical among all the types of FIRE Plan takers is that they all desire to enjoy life without going to a 9 to 5 job for the rest of their lives. Since this desire is widespread, here are four types of plan takers: 

    Fat FIRE:

    Fat Fire is those types of employees that live under so much pressure of retirement that they save more than 70% of their annual income from achieving a good lifestyle when they retire. Do you know? There are very few Fat FIRE followers in the United States because individuals can barely make it to the conclusion of the year without spending more than 30% of their annual income. 

    Lean FIRE: 

    Lean FIRE is yet another form of Financial Independence Retire Early Movement where a person minimises the cost of living to the verge of “not living at all” and triggers extreme savings. It offers a very restricted lifestyle before retirement because the to-be retiree cannot spend on anything except necessities. 

    Barista FIRE: 

    As the term “Barista” suggests, Barista FIRE followers are those who indeed save enough money for retirement. However, they also do a part-time job after retirement to manage current expenses. Such followers deny spending retirement money on a daily lifestyle. Instead, plan to achieve their big dreams like visiting a foreign country. 

    Image credit: Money Crasher

    Coast FIRE: 

    Now, Coast Fire is the last form of Financial Independence Retire Early followers. Coast FIRE is those who also have a part-time job. But, their reasons are different. Meaning, they neither have enough savings to handle their daily expenditure nor have enough to take day-to-day life in the long run without a job. 

    Precautions and Money Management Tips for F.I.R.E.

    • Focus on your dreams rather than handling your daily lifestyle with FIRE money after retirement. 
    • Keep your expenditures as low as possible to embrace the percentage of savings per month. 
    • Work, work and work until you can. More income means more savings. And, more savings means retiring earlier. 
    • Cutdown expenditures on a daily basis when it comes to small things rather than focusing on giant ones. 
    • Avoid using a credit card because one wrong move can destroy all your savings.
    • Finish your home loan or personal loan instalments beforehand. You will not want to give away all your savings to the banks. 
    • Invest in risk-less companies. 

    Want to know more? We are here for you. Ask your questions in the comment space below. Till then, good luck!

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