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

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

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The FIRE (financial independence, early retirement) movement has gained increasing exposure over the years, as more and more people are attracted to the idea of ​​having enough money to give them the freedom to spend their time as they wish. , without being at the mercy of a salary and employer.

But the movement also has a reputation for being overwhelming and even intimidating, as many followers often take extreme measures to save 50% to 70% of their income each year to achieve this goal. By comparison, financial professionals usually recommend that you save 15% of your income each year to retire until the traditional age of 65.

Although each person certainly has their own unique journey to retire earlier, there are some common guidelines that may apply to any FIRE beginner. Below, Select received four tips from Michael Powers, a CFP and founder of Manuka Financial, which specializes in helping people retire early.

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1. Make sure you cover your financial base first

One of the most important steps you need to take – even if you’re not actually looking for FIRE – is to make sure you have some of the basics: Emergency fund in place to help you cover surprise expenses (medical bills, car or home repairs, etc.) without incurring additional debt. You should have any high interest credit card debt paid, along with the ability to continue to make monthly payments for any loan debt, such as student loans or a mortgage.

Those pursuing FIRE may find that they will need to save and invest up to 70% of their annual income to achieve their goals. According to Powers, taking a look at your overall financial image can help you understand where you are right now and where you need to be.

“Try to find out more and consolidate your own financial position,” he says. “Make sure you have an emergency fund and that you can continue to pay the high interest debt. And look at your assets, liabilities, income and expenses so that you can really focus on improving your holistic financial plan. ”

If you haven’t already tracked your expenses or have no idea what your financial starting point looks like, using a budgeting application like Mint or You Need A Budget (YNAB) can help you fill in some of these gaps. It connects 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 you’re making, how much you’re spending, and how much you’re saving or investing, you can start thinking about areas where it’s best to cut your expenses – or increase your income – to get started. from FOC a reality.

2. Determine your reason

3. Identify your needs vs. like

The FIRE movement has traditionally been associated with an extremely low spending rate and an aggressive rate of savings and investment. For many people, this is much easier said than done because there are many gray areas of life where it is not so easy to say no to spending money for the sake of saving. This accomplishment 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 your goals.

“I think the people I’ve seen who have been successful in this are people who are able to easily identify needs versus desires so that they can focus their spending on things that lead to happiness and joy in their own lives.” Powers explains.

In his book, I Will Teach You to Be Rich, Ramit Sethi explains this concept of conscious spending, which states that it is possible to spend as much as you want for the things that make you happy, as long as you relentlessly reduce your expenses. on things you don’t care about. This will allow you to create a “rich life” version. The same idea applies here.

Saying no to everyone – including the things that bring you happiness – can make you feel unhappy during your FIRE trip, and in extreme cases, it can even make you lose touch with the people you love. But by creating space to allow for spending on the things that lead to happiness, whether it’s coffee at your favorite store or that annual family vacation, you keep your joy and stay motivated to retire early.

4. Find out where you should save and invest your money

There are many different savings as well investment vehicles that you can use to put money into retirement and all have different tax implications, contribution limits and distribution rules. Here a financial planner can definitely give you a helping hand to make sure you save and grow your money in the right places.

For example, some people prefer to be hands-on with their investments by setting up brokerage accounts with big names like Fidelity or Charles Schwab. Those who prefer to be disabled may have a robot advisor such as Wealthfront or Betterment set their portfolio for them, depending on risk tolerance, time horizon and investment objectives. A financial planner can help guide you to the best approach and strategy. For many beginners, this can mean getting started by putting your money into indexed funds, for example. Indexed investment allows you to put money into the largest companies in the US with low commissions and minimal risk.

When it comes to certain fiscally advantageous retirement funds, a financial planner can help you make a decision based on when it’s best for you to pay a tax bill: right now, depending on your budget. your current or future income, depending 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, how to pay for your child’s college education, or how to finance your own advanced diplomas while you stay. FOC track.

For starters, you might want to consider checking to see if your employer offers free financial planning services for the benefit of the company. If this isn’t an option for you, you can use a tool like Zoe Financial to partner with a financial planner who specializes in the areas you care about most.


Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article belong exclusively to Select and have not been reviewed, approved or otherwise endorsed by any third party.

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