In recent years a trend known as “financial independence, retire early” or FIRE has taken off on the internet. The people who follow this thinking save hard during their early working careers, with some putting away as much as 70% of their earnings, so that they can retire much earlier than a traditional retirement plan would allow.
The idea behind it is that it allows those who retire early to enjoy their lives while they’re younger and fitter, and for a much longer period of time.
However, critics argue that this approach means you’re making much larger sacrifices during early adulthood, meaning you don’t get to spend as much time enjoying yourself.
Financial independence is a good goal to strive for though, even if you don’t plan to retire at 30. It can give you peace of mind, let you follow your dreams, and enjoy your life more. But how do you achieve it? Here are some top tips.
While many people may not like it, achieving financial independence requires you to be frugal, at least to some degree. The best way to build your net worth is to keep the money you already have; otherwise, you’ll need to work even harder to earn more.
Being frugal doesn’t mean giving up on things you enjoy. You can still socialise with friends, travel, and buy the things you need, as well as have fun. It just means you are more careful with your spending. You can easily find cheap or free alternatives to things you do already.
For example, if you enjoy playing games you can find free-to-play titles instead of buying new games. Sites and apps like PokerStars and Call of Duty: Warzone are free versions of paid-for games, offering many of the same features but at no cost.
Additionally, if you enjoy having meals out with your friends, you could switch to hosting dinner parties. This will be significantly cheaper and just as fun, and with recipe box services like Gousto and Blue Apron, you don’t even need to be good at cooking.
Build Passive Income
Passive income is income that you earn without a direct correlation to the amount of time/work you put in.
Your job is active income. You’re either paid for each hour of work you do, or you receive a monthly salary.
Passive income is more preferable as it can generate you income while you’re doing other things, like other work, sleeping, or having fun.
You can build streams of passive income from many different sources, and most experts recommend building multiple income streams so that you spread your risk. Ideas for income streams include:
- Investing in stocks and shares that pay high dividends
- Investing in quality bonds
- Selling physical products online that are fulfilled by others (dropshipping)
- Selling digital products like ebooks, courses and training products
- Building a website that generates money from ad or affiliate revenue
- Starting a business but eventually employing someone else to run it
Inflation is the phenomenon of money losing its value, and prices for goods and services increasing. This means that any savings you have in cash will be worth less next year than they are today.
For example, if inflation is 2% per year and a smartphone costs $1,000 today, it will cost $1,020 next year. This is an oversimplification because other factors also influence the price of products, but it demonstrates how inflation works.
To beat inflation, you need your money to work for you.
If you have your money in a savings account, you need the bank to pay you a rate of interest that is higher than inflation. At present, this is very difficult to do as most banks offer rates of 1% or less.
Investing in the stock market and buying assets like bonds, property, precious metals, and cryptocurrencies could also help you to protect your money against inflation, though you should remember that investments can go down as well as up.
It can also sometimes be possible to beat inflation by buying products in bulk. If there are non-perishable goods like tinned foods, cleaning products or grains that are on sale in a supermarket, then you’ll beat inflation by buying more of it below its usual price.