Perhaps second only to love, money is the subject of so many popular sayings. Money can’t buy happiness, they tell you. Money is the root of all evil, they’ll say. Money makes the world go ’round. At the end of the day, our relationship with money is complicated at best. It can provide us with so much joy, just as concerns about money can cripple us with so much sorrow. But money is just a tool. It’s what you choose to do with it that matters the most.
You may have come across an increasingly popular trend, especially among young professionals who are reasonably well educated and have more of an entrepreneurial spirit, even if they work at a more traditional 9-to-5 kind of job. It’s called FIRE and it stands for “financial independence, retire early.” Those four deceptively simple words really do sum up the movement. The goal is to be financially independent so that you can enjoy an early retirement.
After all, the “traditional” retirement age of 65 is completely and utterly arbitrary. Who says you can’t retire at 55? 45? Or even 30. If you look at your bank account balance and consider how much longer you’re expected to live, maybe you’ll see why you think you can’t retire at a younger age. But just like the dot com lifestyle, all it takes is a shift in perspective.
What Is Financial Independence?
Basically, financial independence means that you have accumulated enough wealth such that you can handle all of your living expenses for however much longer you expect to live, all without having to “earn” another cent. This doesn’t mean you have enough cash on hand to pay for all these expenses out of pocket. Rather, it means that the wealth you’ve accumulated can generate enough income so that you don’t have to “work” for any more money.
For simplicity’s sake, we’ll keep this hypothetical example as straightforward as possible. Let’s say that your typical living expenses each year ring up to $50,000. Let’s say that you have a reasonably safe investment that can provide a consistent 5% annual return. Not accounting for income tax or any other similar considerations, this means that you need to have $1,000,000 sitting in this investment. The 5% you generate each year covers the $50,000 in expenses. This is clearly an oversimplification, but that’s the general idea.
But it’s not just about investment returns. This blog is filled with content about passive income. When you live the dot com lifestyle, you can eventually remove yourself from the business altogether so that it continues to make money for you. That sounds like financial independence to me.
The traditional definition of retirement is when you reach the age of 65 (or thereabouts), you decide to stop working altogether. You might move to a sunny retirement village in Florida where you play golf every day. Or maybe you just choose to sit on the same park bench every day, gazing out into the water or feeding the pigeons. That’s retirement, right?
More and more, though, people are starting to redefine what retirement can mean. Retirement doesn’t have to mean that you’re doing nothing. In fact, doing nothing should never be the goal of retirement at all and it can actually lead to all sorts of serious problems; depression is very common among recent retirees. Instead, you should be filling that time doing things you love, for example, or volunteering for causes that you believe in. You might discover (or rediscover) a hobby that you really enjoy doing, not because it makes money, but because it makes you happy.
But that sounds an awful lot like the dot com lifestyle too, don’t you think? When John first started this blog, he did it for fun. It wasn’t for the money, per se. When he started writing about making money from blogging, he did it because it was an area of interest for him. The rapidly growing income was just a happy side effect. And now he spends most of the year in sunny California, living a lifestyle that many would say resembles retirement.
Mirroring the FIRE Movement Online
I recently came across an article on Forbes that talked about the FIRE movement and how its proponents are able to achieve this dream of financial independence and early retirement. The author asserts that “there is no secret formula to early retirement.” You just have to follow certain steps. But when you look at these steps, you can see how easily they apply to the dot com lifestyle too.
1. Earn a Good Income: It may surprise you to hear that many of the people among the “FIRE crowd” don’t actually earn a “great” income. They’re generally not making six-figure salaries. They’re making relatively modest five-figure incomes, a goal that is well within reach for a dedicated and motivated Internet marketer, social media influencer, blogger, or online entrepreneur. Making more money is great, of course, but it’s not actually a requirement. You just have to make enough.
2. Save Over 50% of Your Income: This is where far more people stumble. They have a hard time giving up their daily latte habit or they feel compelled to buy the newest iPhone and take lavish vacations. Some people might view cutting back on these things as sacrifices, but the FIRE people see it as a liberating life decision. You can still have nice things; you just need to be more intentional with your spending. The good news is that you’ll save thousands of dollars each year working from home, so that’s already a huge step in the right direction.
3. Max Out Retirement Accounts: I won’t get into the details here, as I am no financial advisor, but really it just means making the most of the financial tools and vehicles that are available to you. Why wouldn’t you take advantage of potential tax breaks and other opportunities?
4. Invest Wisely: It’s not enough to earn a good income and to save a good chunk of it. The typical savings account earns peanuts. You need to invest that money. The FIRE people tend to gravitate toward low fee index funds and you might look into that too, but investing in your online business, both in terms of time and money, is just as much of a smart investment… so long as you really do treat your online business as a real business.
What steps are you taking to achieve financial independence? What did you do today to get you that much closer to retiring early?