Personal Finance

How To Achieve FIRE

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 13 minute read

If you want to be able to enjoy a day at the beach by the time you’re 55, you’ll be able to. If you employ these methods to save for the future, you may be able to afford it. Fewer than four in 10 Americans believe they are on pace with their retirement savings, but others are increasing their accounts through extreme savings tactics in the hopes of retiring early. There are three core ideas of FIRE, which stands for financial independence and early retirement:

  • A significant reduction in spending
  • An increase in income
  • Smart investing

Because early retirement is a goal of many, it is critical to take the proper steps now. Some compromises must be made in time and money in order to reach FIRE. Consider taking up a few of the top side hustles and cutting off all of your extraneous expenses totally. Alternatively, you may adopt a more lax attitude.

When it comes to retirement, there are easy steps you can take today that might extend your life expectancy. You’re sure to find something you can start doing right now on this list.

Create a budget

You’ll need to know where your money is going in order to begin saving for retirement. Begin by keeping track of your monthly costs, and then utilize that data to build a budget.

  1. Add all of your sources of income together.
  2. Subtract your fixed costs, such as rent or a mortgage, from your gross income.
  3. Spend the money you have left over in several categories.

Without the correct tools, keeping track of your spending may be challenging. Check out the top budgeting apps to discover one that works for you.

Set a retirement target

Retirement age and a savings target that will allow you to enjoy a comfortable retirement are both beneficial. To retire at the age of 67, you’ll need to invest 10 times your yearly pay.
In order to retire early and retain your present standard of living, you’ll need to save more. Each year of retirement, save roughly 45 percent of your pre-tax, pre-retirement income. You’ll need to work out how much money you’ll need each year to reach your goal once you know how much money you’ll require.

Reduce your utility bills

Even if you believe your utility costs are set in stone, there are a slew of strategies you can use to save money. One possibility is:

  • Consider putting in a smart thermostat or other such energy-saving devices in your house.
  • Avoid turning up the heat if you can; instead, bundle up.
  • Look into switching electric companies or switching to a renewable energy plan, both of which may cut your monthly utility costs.

Set aside an emergency fund

The FIRE movement emphasizes saving and investing, but in the event of an emergency, you’ll need access to cash in a savings account. A withdrawal from your retirement account or a loan with interest costs will be avoided if you follow my advice.

Savings accounts are typically recommended to hold three to six months’ worth of spending, but with the present state of the economy, you may want to retain more. An emergency fund should have at least $2,467 in it, according to two family finance experts. SSRN, an early-stage venue for social scientific research, recently published an early version of their study, “Rules of Thumb in Household Savings Decisions,” in which this amount was shown to provide the highest buffer with the lowest opportunity costs.

Even if you don’t invest your money, you may still earn interest by opening one of the finest savings accounts.

Stop paying for services you no longer use

Your credit card statements may reveal expenditures that you didn’t expect to see. Consider the possibility that your trial subscription to a streaming service was never ever canceled.
Truebill is a free program that can cancel subscriptions on your behalf if you don’t want to study your statements. To avoid overdraft or late fees, Truebill’s team of professionals can help you negotiate your phone bills and obtain reimbursements from your bank.

Find out if you are eligible for a refund

Have you ever made a purchase only to discover that the price has dropped after you made the buy? Most stores have mechanisms in place to reimburse you for the price difference if this occurs. You may get a refund if the delivery is late, and shops like Amazon will even do so.

Maintaining an eye on both these restrictions and the costs of the products you’ve already purchased may be a real pain. Capital One Shopping Price Protection is a free service that might help you obtain refunds more quickly. Capital One Shopping enables you to receive a refund if the price of an item reduces after you’ve purchased it (within the time period permitted by the merchant’s price drop policy).

Max out your 401(k) and IRA accounts

Your retirement savings will increase more quickly if you start contributing to them as soon as possible. You should save 15% of your pre-tax salary each year for retirement, but if you want to retire early you’ll need to save much more.

To maximize your 401(k) contributions, you may want to go beyond simply matching your employer’s contribution and go up to the cap. Consider opening an Individual Retirement Account (IRA) as well. SEP IRA contribution limitations are substantially greater if you are self-employed.

Use a rewards credit card

As a result of cashback and incentive programs, you may save more of your salary for retirement with every dollar you spend. There’s no reason not to make all of your transactions using a rewards card. There are many annual fee-free cards to select from, but if you know that the advantages, perks, and incentives can outweigh the annual charge, you may want to investigate premium cards.

To choose which rewards credit card is ideal for you, you must consider your own spending patterns and lifestyle. To maximize different types of spending, you shouldn’t be scared to carry a load on numerous credit cards. Just make sure you pay off the entire balance each month to prevent interest costs.

Use a debt repayment strategy

It’s possible that a personal loan with a lower interest rate won’t be available to you because of your fair or poor credit, and you won’t be eligible for a balance transfer credit card either. Debt repayment strategies might help you get ahead of the game and start saving money sooner.

In the debt avalanche strategy, you prioritize your highest-interest debt while making the minimum payments on all of your other unsecured loans. For example, if you’ve paid off a credit card or payday loan, then you’ll move on to the next highest-interest debt.

Get cash back with Ibotta

Why not get paid for the things you already do, such as going to the supermarket? When you utilize the browser extension or mobile app for Ibotta, you may automatically get cashback on your online purchases, and there are a few in-store possibilities as well:

  • When you buy a gift card, you get cash back right away.
  • Connect your Ibotta account to your shop loyalty card for automatic cash back.
  • Before you go shopping, download the app and select the deals you want to take advantage of.

More than 1,500 merchants are Ibotta’s partners and you may collect on most of your transactions. Since 2012, Ibotta has given over $600 million to its customers.

Look for a higher-paying job

Look up the average pay in your city for your industry to see how you stack up. If you’re making less than the national average, you may be able to get a better-paying job elsewhere. A job offer from another firm, even if it’s one you hate, may provide you the opportunity to bargain for a pay increase.

Investing in professional certifications or other forms of continuous education might help you stand out to potential employers. If your current field’s earnings potential isn’t as high as you’d like, you may want to consider training for a whole other field. There are several low-cost technological boot camps and professional certifications, as well as paid apprenticeships for some jobs. Be careful to do a comprehensive evaluation of the program and determine if the additional cash earned will be sufficient to cover the costs.

Consolidate your high-interest debt

A low-interest personal loan might help you save money and get out of debt more quickly if you’re currently paying high APRs on your credit cards or other debt. You’ll just have to deal with one bill each month, and you’ll save money over the course of the loan.

Consider one of the finest balance transfer cards if you have decent or exceptional credit and can pay off your credit card debt within 18 months. Some of these credit cards offer a 0% introductory APR for as long as 18 months. If you have a lower interest rate, you will be able to put more of your money toward the principal.

Move to a less expensive city

You may be able to save more money for retirement if you relocate to a place where the cost of living is lower. Because your compensation is likely to stay the same if you work from home, this is especially true.

But where should you go? You might begin by looking at our list of the 25 best places for remote workers, which was compiled using factors such as cost of living, housing affordability, Wi-Fi speeds, and other facilities.

Invest in real estate

It used to take a lot of money to invest in real estate, but that has changed. Commercial real estate investments may now be made for as little as a few hundred dollars, and you don’t even have to purchase a piece of property to participate. We can now all work toward our goal of becoming real estate barons and generating money for our early retirement years thanks to tools like crowdfunding, REITs, and investing apps.

Switch insurance companies

Insurers weigh your personal information differently, so moving to a new insurance company might save you money. The best way to stay on top of your insurance costs is to shop around every six months, regardless of whether you compared quotes from several providers when you bought your policy.

If you’re looking for the best auto insurance, for example, you may receive estimates from the websites of individual providers or utilize a program that compares insurance rates to get numerous offers simultaneously.

Open a taxable brokerage account

A taxable brokerage account may be an option for you if you’ve already maxed out your contributions to tax-advantaged retirement plans. Investing in these types of accounts can incur capital gains taxes, but there is no restriction on the amount you can invest or the time frame in which you can take money out.

Compare brokerage costs to get the most affordable option. You’ll then need to pick what kind of investments you’d like to make, such as stocks, bonds, mutual funds, or ETFs. Alternatively, you may use one of the finest investment apps, which can help you get started quickly and with a little initial payment.

Earn gift cards with Fetch

You should keep all your receipts since they might be worth a lot more than you would imagine. In exchange for scanning your supermarket receipts, you may receive incentives with Fetch, including e-gift cards to well-known merchants like Amazon and Target.

To get the most out of your benefits, you don’t have to choose any deals ahead of time. Every valid receipt scanned will earn you at least five points, but you may earn much more by taking advantage of extra point opportunities. For suggesting a friend, you’ll also be awarded 2,000 points. A $1 gift card is worth 1,000 points.

Invest in fine art

Diversifying your investment portfolio with a different asset class, such as blue-chip paintings, might be a wise decision. You no longer need millions to get your foot in the door when investing in great art, which has been known to beat the S&P 500.

The minimum investment for Masterworks is $1,000, which allows you to purchase $20 worth of artwork. Once the picture is sold, you have the option of either keeping your investment for three to ten years or selling it on the Masterworks secondary market.

Rent out your space

Renting out your unused space, whether it’s a spare bedroom, a plush sofa, or even an attic, may bring in additional cash each month. Consider getting a roommate or renting out your space on a platform like Airbnb to get extra money. A Neighbor is a great option if you don’t have a place to sleep but do have the storage you’d like to rent out.

Earn rewards instantly with Drop

Drop is a free software and Chrome extension that gives you cashback for shopping at more than a thousand merchants. Additionally, you may link a credit or debit card to the app so that when you make a purchase at a participating merchant, you will be immediately rewarded with points.

You may exchange your points for gift cards to well-known retailers like Amazon and Starbucks for a value of $1 for every 1,000 points you earn. If you use your gift cards to make regular purchases, you’ll have more money to put away for retirement.

Open a high-yield savings account

According to the Federal Deposit Insurance Corporation, the national average annual percentage yield (APY) on savings accounts will be just.05 percent by December 2020. (FDIC). In comparison, high-yield savings accounts can give significantly more. An online bank savings account, for example, may yield you 1%.

Savings in a high-yield savings account will increase more quickly than money in a retirement account. It is possible to create a high-yield savings account without having to deposit a certain amount of money, so you may begin saving for retirement with as little as $25 today.

Work on your credit score

It may cost you thousands in interest charges on your auto and house loans, hike your insurance premiums, and make it more expensive to borrow money from a bank or credit card. You can prevent excessive interest charges by improving your credit score. By paying down your debt, making two monthly payments, and requesting a larger credit limit you can reduce your credit utilization ratio (the amount of available credit you are utilizing).

Think about applying for an authorized user on a relative’s creditworthy account so that you may start building your own credit history. With a free service, you can keep an eye on your score and see what small changes you can do to keep it growing.

Start micro-saving with Digit

If your income or spending changes, it might be difficult to determine how much money you should set aside each month. Digit is a personal finance tool that looks at your income, expenses, and impending payments to estimate how much money you should set aside for savings. An FDIC-insured account is automatically set up for you.

Make a look for any money that has gone missing

There is a lot of unclaimed money out there that people don’t know about. It might be a refunded security deposit or an unpaid overtime check. You could have an unclaimed life insurance benefit, for example.

The National Association of Unclaimed Property Administrators (NAUPA) is a great place to look for these funds. In order to narrow your search, you’ll need to look up every state where you’ve ever resided.

Get rid of your old items and shop at consignment stores instead.

You’re wasting money if you toss out your old clothing, books, furniture, and electronics. It’s simple to make money by reselling your goods on the internet. To get started, choose one of the following options:

  • Electronics: eBay, Amazon
  • Home items: Letgo, Craigslist, OfferUp
  • Clothing: Poshmark, Mercari, thredUP
  • Books: BookScouter, Amazon, Half Price Books

In addition to snatching stuff at local thrift stores, you may save money on home products by shopping around on many of these same websites.

Earn money from your car

Rental services like Getaround and Turo allow you to make hundreds of dollars a month renting out your automobile if you don’t use it very frequently. For the most part, you’ll only need to keep your vehicle clean and well-maintained. You can identify the driver without having to make physical touch with Turo, thanks to the company’s contactless check-in feature. Renters may unlock your car from their phone using a Getaround gadget.

If you’re a commuter, you may monetize your vehicle by running adverts while you’re on the road. Wrapify or Carvertise will pay you based on the number of times and locations you drive your car.

Develop a passive income stream

Due to time restrictions, the earnings potential of the majority of side hustles is severely constrained. Everyone has a limited amount of time throughout the day. It’s possible to make money while you’re doing other things, though. Some demand a lot of effort up first, but there is relatively little labor involved in maintaining an income stream. A few examples of passive revenue sources are as follows:

  • Offering a digital training course for sale
  • Creating a YouTube video that becomes a viral sensation
  • P2P lending may be done in several ways.
  • A dropshipping business can be started.
  • Using affiliate marketing to monetize your blog or social media page

Work freelance

You may be able to work as a freelancer in addition to your day job in many professions. Make a profile on Upwork or Fiverr promoting your abilities and services if you’re a freelancer in any of these fields: writer, designer, web developer, photographer, assistant, accountant, etc.

FlexJobs, for example, has a lot of chances for freelancers. It’s possible that you’ll want to build a website for your portfolio in the future, where you may display recent work and customer testimonials.

Initiate an annual spending freeze

A spending freeze is a temporary halt to all non-essential expenditures. To put it another way, you’ll only spend money on necessities like paying the rent and purchasing food. Expenses like eating out, entertainment, subscription services, clothing, and other frivolous items will be eliminated from your budget. Long-term adherence may be difficult, but even if you only do it for a couple of months a year, you may save a large sum of money.

Bottom line

Everyone can benefit from the ideals of the FIRE movement. Before making a purchase, ask yourself if you could save that money instead. Frugality is a natural byproduct of financial freedom. Having a savings goal in mind can also make you more driven to make additional money.

Many of these financial decisions can help you achieve other goals and add to your overall financial security, even if you don’t want to retire early. Furthermore, they are good options to make during a time of economic hardship. Be confident that you can achieve your retirement goals at any age. With work and sacrifice, you’ll be rewarded with more time to do anything you want. These are excellent starting points.

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