Financial success. They all say that once you get to be independent, own a car, have a job that you love, a house that you call your own; you are living the life.
The American Dream, as they all say in the books and movies that we watch, achieving these goals.
Establishing a secure life, where money won’t be an issue even in the unluckiest disasters you might go through in life; being able to buy everything that you wish, and owning everything there is that one might need in their life.
This will be a long and tough endeavor – if you have no goals and plans set in mind.
However, with careful planning and seamless decision-making, achieving total FIRE – Financial Independence (and) Retiring Early – will be the most sensible and superb decisions one shall make.
💰 What Financial Independence Means
Have you ever had those times where you don’t worry about your bills, you well-being is top notch, and even a hurricane can’t literally stop you from living your best days?
We may have experienced similar things in childhood, where we don’t mind these things at all, as our parents have got our backs.
However, in financial independence, your own success is, figuratively, like your parents who back you up when you’re in need.
In this case however, being independent means you don’t have to rely on salary and from others when it comes to finances.
You’ve got your own back, and you’ll rock the world with your cash.
⛱️ What Retire Early Means
The number one thing that people associate with retirement is being old.
When a person lives life with their gray hair, a plane ticket on a trip to Prague, and they have a nice house in a sunny place down in Florida or California.
However, if you wait till the ripe, old age of 65, will you actually ever have a handful of time when you’ve spent more than half of your life working and studying?
Life becomes more unexpected and fragile by the older ages, and as one grows old and their hair goes gray, so why don’t you beat the system and enjoy retirement at a younger age?
🗺️ A Stage by Stage Road Map
In this article, you will come across eight (actually, seven maybe?) stages that dissect the process of attaining FIRE.
May you be asking how to start over financially at 40, or you’re a young adult planning and dreaming of a very rewarding future in early retirement.
Here are the steps and stages one will most likely go through to achieve financial independence and retire early.
Just like what they say, every journey of a thousand miles starts with a single step.
The key word to stage 0 is to assess.
Ponder upon your earnings and budgeting. Do you barely have enough from your salary to live through the month? Is your life comfortable with your current job? Are you able to change your lifestyle when needed?
Stage zero is where you map out where to go. Now that you’ve known where to start, it is time to know where to go, when and how to achieve financial success.
One of the most important things to do when starting out is knowing your net worth.
You can do this by taking note of what you own (assets) and what you spend your money on (liabilities). Subtracting your assets to your liabilities will give you your net worth.
Simply put, a positive amount means that you’re very well on your way.
You save more money than what you spend and thus is able to keep up with your expenses. Your assets are slowly growing.
However, if it goes negative, then you might want to consider knowing more about what’s wrong.
Cut back on unnecessary spending because you will regret the lack of financial freedom once you reach a certain age.
In short, this is where you assess yourself. What are the good things and bad things about your finance? Is your net worth growing?
Over stage zero already? Well, let’s move on!
Recommended for Stage 0:
- The Basics of FIRE (Financial Independence and Early Retirement)
- How to Plan for Retirement At Every Stage Of Your Life
📍 Stage One: Meeting The Basics
The bare bones to keep track of your finances.
At stage one, a very smart move would be to plan your budget. Check your expenses out. Bills, food, other utilities, take note of things such as service subscriptions as well.
If you want to truly commit to your FIRE endeavor, you might want to think twice before getting that subscription from a music site.
Every penny, nickel, dime and quarter counts.
In the long run they will be very significant as they pile up. Thus, each cent of your money should go to a deserving part of your expenses and just not from your impulsive thoughts.
Do you buy two chocolate bars for yourself every Sunday? Maybe consider trying to cut it back to only one bar, it can be good for your health and your wallet!
Thus, having a budget plan will help you immensely on your way to financial independence. It will give light to where you should cut back, reconsider and recover from.
After all, 2 quarters a day might be insignificant, but over the years it will buy you your dream ticket for a trip to Amsterdam without even realizing it.
Done tracking down your expenses and monthly bills? Time for stage two.
Recommended for Stage 1:
- How To Make A Budget
- A Beginner’s Guide to Side Gigs From Home
- Easy Ways to Make Money At Home
- How To Start A Side Business
- How to Make Money Blogging in 2021
- College Students Who Work: 9 Strategies For Balancing School And Work
- How to Become a Freelance Web Developer in Six Easy Steps
- 5 Strategies for Standing Out and Landing Work as a Freelancer
- How to Be a Freelance Writer
- 8 Skills That A Successful Freelancer Should Have
📍 Stage Two: Stability
Stability is a very notable key to financial success.
If the roadmap to financial success has plans as if it were the destinations, then stability is like the asphalt that keeps the road less bumpy.
Stability is a recurring theme that you will keep on seeing in your endeavor, because if your financial status keeps on being unstable and fluctuates every time, then your progress to financial success will become hard to track and will most likely become unpredictable.
An unpredictable financial status will be harder to keep track of, especially for people newer to doing finance. Thus, reading a lot books for financial success might help.
Expand upon your current knowledge and be better each day that passes.
Being money-smart is also as important as being smart in other aspects of life.
What’s more, keep yourself and your loved ones secure. Save up not for just retirement, but also for the sake of emergencies.
From hurricanes to earthquakes and pandemics to sudden war, having money kept for sudden situations will prove useful for the future.
Even at the very mild inconveniences, are you sure you’ll be able to keep the same job that you’ve gotten comfortable with all these years?
Thus, the key word to stage two is to just build up, and keep on building up.
However, one word that you shouldn’t put with “build up” together is the word “debt.” Thus, we move to stage three after seeking financial stability.
Recommended for Stage 2:
- Emergency Funds: Everything You Need To Know In Preparing
- Renting vs. Buying A Home: A Complete Guide
📍 Stage Three: Debt-free
Debt. It’s like that guy on the street who keeps on asking if you have spare cigarettes.
They won’t go away unless you do something about it.
Unless you’re a bad guy, running away from debts is not a very sensible thing to do.
For an upstanding citizen, one must pay their debt before they seek for financial independence. Thus, the road to financial success is hindered by a huge roadblock, which is outstanding debt.
Now, I’m not here to claim that becoming debt-free is child’s play.
Some take decades to pay it all off, from school debt to the 300 bucks you borrowed from your friend last month. However, some people do it in mere months! It completely proves how it is such a different scenario for each and every person out there.
Some people might get a tad bit lucky and just find it easier, while some might have to take it slow and steady due to other factors.
Each person will have a different challenge to face, and this is where your assessments in stage zero play a big role.
So, how does one become debt free?
One of the most notable things to take care of is outstanding credit card debt.
Credit card debt is known to have somewhat high interest rates and very punishing consequences once you fail to pay up in time. Thus, building credit card debt over the years is a big no-no.
The interest rates will make you realize how much money you’ve lost over the years once you add it up. So what do you do?
Financial advisors agree upon a portion of the monthly salary to be used for dealing with credit card debt. The magical number is between 10 to 15 percent of your salary. In no time, it will be taken care of!
In order to pay your debt easily, the main principle here is to spend less to get rid of more. Spend less on things that are not necessary, and use it to get rid of more debt.
Debt is like a huge metal ball holding you down the pool as you try to swim back up to the surface. The smaller and lighter it is, the better you get up to the surface.
A very effective, but very frugal way of cheesing your way out of debt is to cut on the TV cable connection.
When those 100 bucks start flowing to your debt-clearing work instead, your wallet (and your own wellbeing) will thank you!
So, are you ready for the next step? Stage four is all for you when all your debt has been taken care of.
Recommended for Stage 3:
- How To Get Out Of Debt
- Save For An Emergency Fund or Pay Off Debt First?
- Credit Score: How To Improve It, Step By Step
- How To Save $10,000 Over The Course Of A Year! 6 Easy Steps To Take Right Now
- How to Increase Your Income Quick and Easy
📍 Stage Four: Secured
Security, as the word implies, is the sureness of your financial stability and success over the years.
You know that you’ll make it on top within decades, and the financial advisors you’ve talked to surely do as well!
Once you’ve taken care of debt, it is time to no longer rely on someone’s financial assistance as you will have a very significant purchasing power at your disposal.
Cars? No need for mortgages. Houses? Hospital bills? Put a check beside those on a list.
Financial security is when you’re 100% percent sure that even calamities and sudden events will not take any significant toll on your expenses.
For example, suddenly getting COVID-19 without insurance will cost around $51,000 to $79,000. Will you have enough money saved to take care of such inconvenience once it happens?
A very good way to earn money is to sell items that you don’t use anymore. A garage sale will definitely give you more money than doing nothing at all. Again, each penny counts.
Feeling secured enough? Think you’ve got what it takes to stop committing to your 7 to 5 shifts and live a very cozy and fun life? Off to stage five we go!
Recommended for Stage 4:
📍 Stage Five: Freedom
No more debts, oh how long have you awaited for this! Now, all we have to do is stick to the plan and put one word in mind – “discipline.”
Being debt-free does not equate to financial success at all, as it only reflects a part of it.
As always, find more money to earn and save; save up more money for emergency funds. You never know what happens tomorrow, or to be honest, even within the next hour.
A debt-free life is high time for reassurance and more planning.
When should I be able to fully retire and live a chill and humble life? How do I save more and spend less? Are there more things that I keep paying for but do not actually need that much?
Aside from financial purposes, one should also take care of their health. What’s cheaper, using a car or a bike? Surely the bike does not need gas budgets and is more healthy for a person.
Thus, is it a good idea to just walk or ride a bike instead of using a car when shopping for groceries four blocks away from home?
In making money, every second counts. Not only that, but every penny counts as well.
The more ways you find to spend less, the more the money you save up in the future.
It’s going to be a blast spending your later years in life knowing that you’ve got all the money that you’ll ever need, maybe even more.
The bottom line for stage five, is simply put, to better. The bettering of your financial status does not fit in with the word “enough.”
You only stop when you are no longer breathing, as in retirement you still need to be realistic with your wants and needs.
Reconcile and ponder upon your past mistakes, and improve upon the strategies that you’ve thought about throughout the years.
The past is your friend, never be hostile towards it.
Recommended for Stage 5:
- How to Start Investing: A Beginner’s Guide
- Active vs Passive Investing
- Conservative Investor: How to Build Your Portfolio
📍 Stage Six: Financial Independence
Financial freedom. You no longer rely to your long gone hours of hard work just to get by the next few weeks. You love the way you earn money, and you get it without a sweat.
Was money a very hard thing to get for you back then? Look at how much you’ve changed!
In attaining financial freedom, a very big milestone in the roadmap to financial success, a positive way of thinking is your friend.
Be willing to take risks, and don’t be afraid to sacrifice something for the sake of being financially independent.
However, take calculated risks; taking risks without thinking of the consequences is a very bad move.
By this time, you should be able to find a passive way of getting money. Passive income is the type of income that you get regularly without doing much work. From investing to letting people borrow your money for interest in the future, passive income is a major key to financial success – if you have the capital.
By this point, monthly bills and expenses should be of little inconvenience to you – something that you just write down on a piece of paper without stressing too much about.
However, be sure to always save up more and more money, as you’ll need it for the next stages.
Now, we just have to bask in the feeling of being financially free.
Pertaining to your principles is a must, though, as getting used to an extravagant lifestyle might become your downfall. Just like bearing fruits, wait for it to ripen before you take it. Who knows, if it’s ripe enough, it might even fall by itself for you.
Now what? Just save up more! The more money you have by the end, the more there is to spend in retirement.
This does not only reflect upon your persistence and hard work all these decades, but it will also be the most pleasant part of your life.
Recommended for Stage 6:
- Financial Independence With Real Estate: Here’s How To Achieve It
- How to Purchase Your First Rental Property While Still in Your Twenties
- Cryptocurrency: An Introductory Guide
- Investing in Cryptocurrencies: Is It Too Late To Buy Bitcoin in 2021?
📍 Stage Seven: Total FIRE
Most people dream of retiring with gray hair and a strong marriage of more than 40 years. However, isn’t it better to be in total relief at an earlier age? Where your bones are very much strong and your strength is at full capacity?
Traveling all over the world and having the best time of your life might be a bit hard if you’re at an older age.
After all, no one wants to go hiking with joint pain. So what then? Maybe retiring in your 30s or 40s is even better. Actually, scratch that; retiring in your 30s or 40s IS actually better.
So, you’re now debt-free and you get money from something you don’t work hard for. You just roll in the capital and out comes the profit.
You should be proud of yourself, as you’ve become your best version.
Thus, maybe it’s time to reward yourself with a life where you don’t have to stress much about stuff.
However, even if you have what it takes to live a high standard of life, you should be able to still budget your money in a realistic manner.
Spending tens of thousands per day will surely make the purpose of saving up all these years for nothing, and stopping all sources of passive income will make you run out of money faster than you can say “I think I’m in debt again.”
Thus, at this stage, be sure to avoid spending too much at all costs. If possible, increase all sources of passive income.
From investments to businesses, there are many ways of growing your already bulky stash of cash into an even bigger one.
Once you go big, you can hire advisors and managers so you don’t even have to mind your progress that much. That is the power of passive income, you earn money without even breaking a sweat.
Now if someone asks how you feel, you show your fine state of well-being and say “like a million bucks.”
Now, the funny thing is, you literally have so much money that you feel so well about yourself. That is the psychology of success paying off.
Be proud of yourself, as you’ve come this far!
Recommended for Stage 7:
🤔 What Stage Are You In?
After reading this article, you might’ve even realized that you’re in one of these stages without even knowing about it!
From the beginning stages to the advanced parts of FIRE, you should know that quitting might cause more inconvenience than relief.
Thus, if you’re still in the early or middle stages, you should always be thinking about your next moves.
Be cunning, but also be flexible and sensible.
❓ You Might Ask
1) How does financial independence retire early work?
Simply put, you save up and plan your savings aggressively to the point where you can retire by the age of 40 and even younger. Lowering one’s expenses and maximizing income is one of the ways that help achieve FI/RE. Sometimes, a seemingly-frugal lifestyle will help us in the long run.
2) How much do you need to retire early?
The short answer is, it depends. Financial experts state that you should have 10 to 16 times your normal salary once you leave your job. So if say, you make $100,000 a year, then having $1,000,000 to $1,600,000 is the most optimal amount of money to have to retire.
3) Do I lose money if I retire early?
Somewhat, yes. However, this element is more of an unstoppable and inevitable force than it is avoidable. One of the most common problems for people who save a lot of money is that they may face inflation. Prices increase over time normally, but once an economic crisis unexpectedly happens, like what we’re facing in COVID-19
4) How long does financial independence take?
For each person, it will be different. On average, however, it takes 5 to 10 years for a person to achieve complete financial independence.