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

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The FIRE (financial independence, early retirement) movement has gained greater exposure over the years as more and more people are drawn to the idea of ​​having enough money to give them the freedom to spend their time as they wish, without be at the mercy of a salary 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 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. Next, Select got four pieces of advice from Michael Powers, CFP and founder of Manuka Financial, which specializes in helping 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 You have an emergency fund to help you cover unforeseen expenses (medical bills, car or home repairs, etc.) without incurring additional debt. You should have paid off any high-interest credit card debt, as well as have the ability to continue making monthly payments on any loan debt, such as student loans or a mortgage.

Those looking 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 tracked your spending yet or have no idea where your financial starting point is, using a budgeting app like Mint or You 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 tracking 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

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 who have been successful at this 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,” Powers explains. .

In his book, I’ll Teach You How to Be Rich, Ramit Sethi explains this concept of conscious spending, which states that it’s possible to spend as much as you want on the things that make you happy, as long as you ruthlessly cut back. on the things you don’t care about. 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 during your FIRE journey and, in extreme cases, can even cause you to lose close connections with the people you love. But by creating a space that allows you to spend on the things that fuel happiness, whether it’s a coffee from your favorite store or those annual family vacations, you keep your joy high and you stay 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 can definitely lend a hand to make sure you’re saving and growing your money in the right places.

For example, some people prefer to actively participate in their investments and open brokerage accounts with reputable firms such as Fidelity or Charles Schwab. Those who prefer not to get involved can have a robotic advisor like Wealthfront or Betterment set up their portfolio for them, based on their risk tolerance, time horizon and investment goals. 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 US companies 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 home you can afford, paying for your children’s college education, or financing 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 isn’t an option for you, you can use a tool like Zoe Financial to be matched with a financial planner who specializes in the areas of greatest concern to you.

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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