Setting Your Money on FIRE – Financial Independence & Early Retirement

Hey guys, Bridget from Money After
Graduation here to talk to you about setting your money on FIRE — or Financial
Independence and Retiring Early. I’m doing this video at a subscriber request
because I am NOT a FIRE blogger or YouTuber. I was really interested in the
concept earlier in my 20s when I was getting excited about personal finance
but… then lifestyle inflation happened, and while I’m still committed to
increasing my wealth and amassing large amounts of savings and investments, I’m
still going to need to work to earn an income for a few more years yet.
Nevertheless, I hope you find this video informative and inspirational so you can
explore financial independence and retiring early for yourself. If you’re
not familiar with the term financial independence or retiring early refers to
having enough in savings and investments that that money is producing an income
through interest in dividends that is enough to sustain your lifestyle. This
means you no longer have to go to work to earn a paycheck because you can live
entirely off the wealth that you’ve already accumulated. Obviously this is a
really attractive option for many people because they hate their jobs. Or not even
though they hate their jobs, they just don’t necessarily want to be tied to
their career and vulnerable to things like being laid off or fired and so on.
Having enough money that’s coming in passively to pay all your expenses is
totally liberating. When you’re not relying on a job for your livelihood
you’re free to do whatever you want. That might mean working at a different job or
it might be living a life of leisure. Whatever the case, the choice is totally
up to you. Recently financial independence have
been getting a lot of attention because there’s quite a few people that are
managing to achieve this in their late 20s or early 30s and that is really
young to retire, obviously. When most people think of retirement they picture
themselves at 65 or even 70 years old before they can actually live on passive
income but there are plenty of people that have found a way to do it when
they’re very young. The reason so many 20- and 30-somethings are able to achieve
financial independence and early retirement so young is because it
actually takes a lot less than you might think. Most of the time when we think of
retirement you imagine needing millions of dollars in the bank but truthfully if
you live a small and frugal lifestyle you can afford to retire on much less.
Therefore these young people that withdraw from the workforce early have
generally only amassed a few hundred thousand dollars but because they keep
their expenses very low in their lifestyle this is enough to sustain them.
For example a $500,000 investment portfolio can generate $30,000 to $50,000 in passive income per year — even more if it’s invested very
wisely. Obviously a lifestyle on $30,000 a year isn’t super
glamorous but if you don’t have to work for that money and you’re allowed to do
whatever you want with your time it might be really attractive to you. You
might be looking at that sum and thinking, “I can’t even get to five
hundred thousand” but it’s easier than you think if you manage your money well.
It does require you to be super committed to reducing your expenses and
increasing your income but once you hit that first hurdle of a $100,000 it becomes easier to get the subsequent $100,000 to
get you to your $400,000 or $500,000 or $600,000 that you
actually need to leave the workforce. The general rule of thumb is to do your
calculations with a withdrawal rate of about 4%. Using this figure to
determine how much you need to retire all you need to do is take the annual
income you’d like to have and divide it by 4% and that will give you
the total amount you need to save in order to retire early. Whether or not
you’re committed to financial independence and early retirement you
should do this calculation anyway. You might be surprised at how little you
actually have to save to achieve this extreme financial goal. If you are
interested in financial independence and retiring early it requires that you
ruthlessly cut expenses. This is the first step to affording early retirement
because it requires you to do it now so you can save the money but also later so
you can live off what you have saved. Obviously, it is far easier to retire
early if you only need $25,000 or $30,000 a year as
opposed to needing $65,000 or $75,000 To live a lifestyle on a small income requires a real commitment to
frugality you have to cut major expenses like housing costs and transportation
but you also have to skip small ones like dining out and buying new clothes.
In order to achieve financial independence and early retirement you
have to want it more than you want to eat out at restaurants or buy a new
outfit. For some of us loves too much the commitment. Once you’ve ruthlessly cut your expenses you’ll have a lot more room in
your budget to start saving money. In order to achieve financial independence
and early retirement you should be saving at least 50% of your
income but preferably 60% or even 70% Obviously the higher income the
easier this is to do, but even on a small income it’s absolutely necessary to save
half of it if you want to leave the workforce early. How you can think about
this is, you’re essentially buying one year of freedom for every year that you
work. If you’re earning $50,000 and you managed to save $25,000 of it and live on
the other $25,000 you’ve lived on one year of your salary but you save a whole
year’s worth for the future — even more because that’s going to grow with
interest and dividends. Obviously the more you earn the faster you’ll hit your
financial goal so while you might be able to live comfortably on $25,000 a
year you’re going to be needing to earn $60,000 or $70,000 or $80,000 — even $100,000 in order to retire early. For most people it’s really hard to work for
six figures and then live on a fraction of that. And again this is where it comes
in that you have to be really committed to the freedom of early retirement in
order to make it work. Personally this is where I kind of went off the wagon. I
found it was way more fun to enjoy a $75,000 or $100,000 income
than to live like I was still earning $30,000 a year.
Once you’ve ruthlessly cut expenses and maximized your income, it’s just a matter
of investing that money wisely in the stock market. You have to choose a
diversified portfolio that focused both on income and capital growth to get you towards your financial goals faster. Like I’ve
mentioned a few times financial independence and early retirement
requires a lot of commitment but if you’re up for it there’s nothing like
being totally free to do whatever you want with your time because you have a
passive income that can cover all your bills. That’s a freedom that many people never realize in their lifetime, let alone when they’re in their 20s or 30s or 40s. Even
if financial independence and early retirement is not for you some of the
lessons to achieve it might be. I know because of my early interest in it I’ve
been inspired to live a more minimalist life. I don’t have things like cable, I
don’t own a car, so I have a lot of extra income to save and invest because I’m
not spending it all and that really comes from my interest in financial
independence and early retirement early on. Even though I didn’t commit to the
full lifestyle and I’m going to need to work I’ll still have the freedom to
leave the workforce a lot earlier than my peers because I’ve been responsible
for so many years. Being able to go without spending your money on certain
things will always work in your favor. It’s always easy to increase your
lifestyle but it’s really hard to go the other way. So the happier you can be with
less, the better off you’ll be overall and so will your bank account. I
hope you guys enjoyed this video if you did give it a thumbs up and subscribe to
my channel. If you’re interested in financial independence and retiring
early I would love to hear about it in the comments below or if it’s not for
you I’d be interested in hearing why as well. I will see you guys next week

10 thoughts on “Setting Your Money on FIRE – Financial Independence & Early Retirement

  • This would be super difficult for my one income family of six, however, we are still working hard to get where we want to be!

  • I'm a FIRE seeker, but not fanatical about it. I'm currently saving over 50% of my income, but a big chunk of that is just to legally reduce the amount of MY money that goes to the tax man. I still drive a BMW, and eat out 7+ times per week (travel regularly for work), so I don't ever feel deprived of anything. I also can't seem to force myself to cut cable, even though I HATE Comcast for charging me nearly $200/mo!!! That will be my next big win, saving at least $1000/yr by only keeping internet and then adding that about to my savings/investments

  • I'm 30 and I have a 5 year plan to retire early. I'm saving 50% of my income, and in 5 years I'll sell my house and move to a tropical country where the cost of living is lower. I am dedicated and I will give up any luxury or convenience to make it happen.

  • it's crazy how doable this actually is, wish i knew it in my 20s but even now its possible to achieve in as little as 15 years

  • Very well explanation, even if you don’t like the idea of early retirement the savings and the investment helps a lot in any circumstance

  • Thank you! I won't be trying this, but I do save 50% of my income during times when it is higher (which is often lately) and like you, I'm working on the side hustle (for fulfillment and opportunities too, not simply money) and really, for me I like to work and have a purpose so don't feel like I need to retire, I just want to have the most options I can in life and if anything happens I want to be able to handle it without the extra stress of not having good savings. Thanks so much for your videos they are great!

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