The trip into the FIRE isn’t going to be about giving up everything you’ve ever wanted or how you live your life, because let’s face it, I’m not going to do that, so why should you?
Your first task as someone who cares about early retirement is to decide who you are as a person or family and how your spending and financial situation can be tailored to help you get where you want to be with the least pain and agony possible.
Are you Sally Spender?
Are you Benjamin Budget?
Are you Franny Frugal?
Or are you somewhere in the middle, like me? I’ll call our middle ground Charlie Chug-Along. Most of the Benjamin Budgets and Franny Frugals who are reading this are already light years ahead of Charlie Chug-Along and Sally Spender, but there is a place for all of us in the FIRE world. Sally may end up as a FatFIRE, which is a group of people who are working toward financial independence on a higher annual income. The other three characters above will fit into the typical FIRE group, which spend more in the range of $50-$60,000 a year and under, whereas the FatFIRE group spends $100,000 per year or so and plans to keep that up in retirement.
I ran the numbers for myself, and we currently spend around $30,000 to live a comfortable, upper-middle class lifestyle without giving up many luxuries. I am allowing for $40,000-$45,000 in retirement, which includes an addition for paying 100% of our own health insurance premiums and expenses. I would guess Franny Frugal comes in somewhere below that, and Benjamin Budget knows for sure, because he already has a budget and is tracking his spending.
A couple pieces of advice to get you started are:
1) Keep track of your spending! If you don’t want to budget, at least download your bank account details and track what you are spending your money on so you know how much you need to live off of annually and where you may want to make cuts if needed.
2) Pay off your high interest consumer debt as soon as possible. You can do this in many ways. Some people like to start with the smallest loan or credit card and then move to the next. That is a viable strategy, but not everyone wants to proceed that way. You can also look at which has the highest payment or interest rate and work from there down. Paying off the highest interest rate account first will save you money in the long haul. Paying off the item with the highest minimum payment first will free up the most money to pay off other bills first, so the choice is individual.
3) Make sure you are taking advantage of any employer sponsored 401k match. If you’re not, you’re giving away free money toward your retirement, which you’ve probably heard from a million people already. Once the money is coming out of your paycheck you won’t notice the difference and if you make traditional 401k contributions you will be lowering your federally taxable income, so win-win!
4) Consider starting a side-hustle to make more money. Perhaps tutoring kids or students, driving Uber, or freelance writing on the side interest you? These are all good ways to make extra cash to invest or put toward your debt.
Do you have a side-hustle already? Do you like to budget and already know your monthly expenditures? Do you hate budgets? Tell us in the comments! We love to hear from readers.