If you’re like me, you’re eager to achieve financial freedom as soon as possible. Don’t worry—there are many paths to Financial Independence and Retiring Early (FIRE).
Interested in joining the FIRE movement? A great starting point is to read a comprehensive guide on financial independence and early retirement to grasp the basic concepts.
Want to be financially independent and retire early within a certain number of years? Stick with me, and I’ll explain how you can achieve FIRE!
There are several strategies to reach FIRE, from winning the lottery to having a wealthy relative. For now, let’s focus on the most popular and realistic methods.
You don’t have to pick just one strategy! I’m currently using two out of three methods and plan to start the third one this year.
The most popular way to reach FIRE is through saving and investing, which is also the most accessible. On this path, it’s crucial to save half of your after-tax income.
First, use your savings to pay off any high-interest debt, like credit cards and car loans. If you have low-interest debt like a mortgage or student loans, don’t prioritize paying them off. Instead, invest that money, as the average historical return on investments is around 7%.
Once you’ve paid off high-interest debt, create an emergency fund. This is vital because you want to be able to handle unexpected expenses without dipping into your investments. Aim to have 3-6 months’ worth of expenses in your emergency fund.
After setting up your emergency fund, invest any extra money you save. This doesn’t mean day trading or actively managing individual stocks. Focus on consistently putting money into the market through low-cost index funds.
For long-term investing, avoid major fluctuations, especially when you’re retired. While investing for the long term is a solid strategy for reaching FIRE, be aware that different index funds have varying fees. Over 40 years, even a small difference in fees can significantly impact your returns due to compound interest.
For example, investing €100 monthly over 40 years with 0.1% fees results in €431,200. With 1% fees, you’d have €339,000. The difference of €92,200 is due to compound interest, where your returns generate more returns over time.
No matter the market’s ups and downs or your fears about investing, it’s one of the best ways to achieve financial freedom.
Read more on how to start investing in stocks, bonds, or ETFs.
Many in the FIRE community aim to maximize their savings rate by drastically cutting expenses. Some even move to countries with lower living costs. Reducing your annual expenses significantly lowers the amount you need to be financially independent.
Besides stocks and bonds, there are other investment options. Peer-to-peer investing is gaining popularity. This involves lending money to people at higher interest rates. For example, I invest with Mintos, which offers interest rates between 5-20.5%. They even have a buyback guarantee if the borrower can’t repay the loan.
I’m enthusiastic about this approach. If you’re curious, check out my Mintos review to learn how I earn over 11% interest.
Another path to FIRE is through business. Many businesses offer the potential to earn a living. If you choose this route, be prepared for challenges, but it can build your FIRE foundation in years rather than decades.
Starting a business is easier than ever. You can set up a website in minutes. If you’re cautious like me, you don’t have to quit your day job right away. I’ve listed many side hustle ideas you can explore.
One recommendation is to start a blog. If you’re interested, I’ve outlined three easy steps to start a blog affordably. Learn more about how to start a blog here.
Currently, I don’t own any real estate, but I dream of owning apartments to generate passive income. Real estate can provide substantial passive income with relatively little effort.
Finding a good property that offers sufficient cash flow requires some initial research. Educate yourself on what’s important. I started with “Rich Dad Poor Dad.” Don’t overdo it, though—take action when you find a promising investment.
If you don’t have enough capital to invest in real estate on your own, consider alternative options like REITs (Real Estate Investment Trusts) or crowdfunding.
For now, the housing market is too expensive for me to invest. I’m waiting for a better opportunity, hopefully within a few years.
What’s your preferred way to achieve financial freedom? Let me know!