Beginner’s Guide to FIRE

A step by step guide to get you started on your path to financial independence

 

01

Create your happiness list

What are the top 5-10 things that make you happiest on a weekly basis? Write these down, compare with loved ones and start to think about your value system. How does that system align with your spending?

 

02

Calculate how much you have

Determine your net worth. Your net worth includes all your assets (cash, bank accounts, retirement funds, investments, and items of value, like houses and cars) minus all your liabilities (student loans, consumer debt, car loans, etc.).

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03

Figure out how much you spend vs. save

Where is your money going? Most of us are shocked to see how much we spend on daily expenses like food and gas. You can do it on paper or using an online tracker like Mint, You Need a Budget, NewRetirement.com or Personal Capital.

 

Your Money or Your Life is published by Vicki Robin & Joe Dominguez in 1992. Oprah says “this book will change your life” and goes on to become a NY Times Bestseller.

Mr. Money Mustache posts his 1st blog on April 6, 2011. It now reaches an estimated 1.5 mil. readers/ month.

94% INCREASE IN GOOGLE SEARCHES FOR
“FINANCIAL INDEPENDENCE RETIRE EARLY” IN THE LAST 5 YEARS.

 
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04

Reduce the “Big 3”

This is your chance to reorganize your life to fit your new goals! In order to really move the dial on your savings rate, you need to tackle some big changes — things like finding a roommate or downsizing to a smaller home, buying a used car or taking public transit to work, and cooking all meals at home. Combined, these changes could increase your savings rate by 30 percent or more.

 

05

Make your savings work for you

Every minute that your money is sitting in a bank account, you’re missing an opportunity to make it work for you. Whether you’re paying off high-interest debt, investing in index funds (or other funds), or buying real estate, your money should be getting the max return.

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34% OF THE FINANCIALLY INDEPENDENT
BEGAN THEIR JOURNEY BEFORE THE AGE OF 30

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06

Increase your income

Extra income = FIRE faster. Many FIRE bloggers have found ways to earn extra money from ads, tools, or affiliate marketing links. While earning more isn’t necessary, most people on the FIRE journey will eventually focus on growing their income in order to increase their savings rate once they’ve run out of expenses to cut.

 

75% OF THE FINANCIALLY INDEPENDENT SAY FI (FINANCIAL INDEPENDENCE) IS MORE IMPORTANT TO THEM THAN RE (RETIRE EARLY).

07

Find your FIRE community

What’s the point of buying back time if you don’t have people to spend it with? Surrounding yourself with people who share your same path & values is vital to sticking with FIRE (especially if the going gets tough).

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JL Collins self-published “The Simple Path to Wealth” sells over 50,000 copies in less than TWO years.

ChooseFI’s Podcast hits 6 million downloads.

On Paula Pant’s “Afford Anything” podcast, Suze Orman rants on FIRE, “I hate it, I hate it, I hate it… and let me tell you why”. After major backlash, goes on to recant and claims she was “given bad information.”

Resources

 

Step 1

 

Step 2

You can use our simple Playing with FIRE Net Worth Calculator to get started with your quick “back of the napkin” calculations.

This step is meant to give you a quick look at your current financial picture. Don’t let the little hiccups get in your way.

Can’t find the login to one of your investment accounts, or your student loans? Just ballpark it for now. As you go along, you’ll have the time (and inspiration) to go back and find these.

 

Step 3

You can use a tracking tool like Personal Capital so you can see everything together in one beautifully designed interface. We ended up using this as our daily money tracker, so it might make sense for you to simply start using this right out of the gate. The only drawback, as with most free tools online, is the tool is really a gateway to lure you into using their financial advisors. But since you are a super smart member of the FIRE community, you’ll know (soon enough, if not already) that fees are the enemy and you can manage an average investment portfolio all on your own. So, ignore the calls from Personal Capital, and enjoy their tool. It’s pretty amazing, and worth the small hassle.

Other services worth considering:

 

Step 4

This part is really up to you. But we’ve created some tools to help get you started! One of the easiest ways to cut your costs is looking at your transportation fleet. Do you have a new(ish) car? Are you leasing? Do you have multiple vehicles, but one sits most of the time? It might be time to downsize! Vehicles cost us way more than we think, with insurance, gas, maintenance, depreciation and opportunity costs. They can add decades to your working life. Would you work an extra 10 years just to drive that new leased vehicle? If you work 40 hours a week, 50 weeks a year for 10 years, that’s 20,000 hours. Imagine having that time back to go for a run, spend time with your loved ones or slow travel thru Europe instead of sitting in traffic or the office. No brainer.

 

Step 5

This part can get quite complex, but we will make it easy to get things kicked off.

  • The first thing you’ll want to understand is why we avoid fees at all costs. Listen to this episode from ChooseFI and prepare to have your mind blown.

  • If you have any cash sitting in a bank account, check what kind of interest you are getting on that cash. You may want to consider opening an account with Ally Bank. They offer one of the highest Annual Percentage Yields on the market, regardless of the amount you have with them, there are no monthly maintenance fees (we hate fees!, and they have award winning 24/7 customer care. Why let your money lose value with inflation?

  • If you are new to investing like we were, buy this book (or listen via audio book). You will learn everything you need to know about the stock market, and we are willing to bet all your investment questions will be answered. Literally, it’s that easy. The Simple Path to Wealth is our favorite investment book. Period.

  • If you are interested in real estate, as we are, you may want to consider whether you want to participate passively or actively. Taylor and I found our friend Chad Carson’s book, “Retire Early with Real Estate” to be incredibly helpful in understanding what plan would work best for our personal interests and abilities.

  • If you are considering a passive plan, you may want to consider Roofstock. Used by many of our peers, it’s a simple and effective way to buy into the market. Sometimes, that’s all you need.

  • If you want to get your hands dirty, consider joining the Bigger Pockets community. They have everything you’ll ever need to get started in real estate investing.

 

Step 6

Increasing your income is an obvious but incredibly potent way to accelerate your path to financial independence. We have a few resources that will help you achieve new and exciting results.

  • First up, we recommend reading our friend Grant Sabatier’s book, Financial Freedom. It will give you an entrepreneurial attitude and incite brainstorms and ideas how you can design a better system that works for you.

  • We would also recommend Ramit Sethi’s guide to asking for a raise and negotiating your salary.

  • We plan to build into this step further in the future, stay tuned!

 

Step 7

This may actually be a step you’ll want to consider earlier in your journey. Having support is one of the best ways to ensure you’ll stick with your goals.

  • ChooseFI has created a system of local Facebook groups, so odds are, there is a group of FIRE folks meeting up in your area! Check them out here.

  • CampFI hosts weekend retreats all over the country, and are often headlined by FIRE’s best and brightest bloggers, podcasters and thinkers. Well run, well organized and highly recommended by so many, this may be a great way to introduce yourself to a new community.

  • Chautauqua is put on by our friends JL Collins, Alan and Katie Donogan and Kristy and Bryce Shen. If you are looking for a more intimate, international retreat, this may be for you. Taylor and I have attended 2 Chautauqua’s during our FIRE journey, and count them as some of the most transformational experiences of our lives.

 

Next Steps...

Now that you’ve seen the bones of the process, it’s time for some additional context.