Millennials have the gift and the curse of unlimited possibilities. In a world of selfies and vegan pancakes, we can be whoever we want to be, learn any new skill in the speed of a mouse click, and carry our office with us wherever we go. We can even become insta-famous and travel the world for a living. Millennial super heroes are showing the way it can be done and that only the sky is the limit.
Yet, while searching for self-fulfilment, we often end up in self-doubt. With all options open, what do I want my life to look like? What makes me truly happy? Questioning is not a negative thing in itself, but it is a problem that many millennials are facing today. Constantly wandering in the hope for something “better”, we have become a generation of nomads, both on a physical as well as spiritual level. We talk more in detail about this in our post Are we Generation Nomads?
Exploring our desires and experimenting with what makes us self-fulfilled is now more attainable than ever before. All these prospects out there are great, yet, we all have very busy lives filled with work and other commitments. Juggling hobbies and thinking about what it is that would really make us happy seems almost impossible. Wouldn’t it be great if you could retire from all your financial commitments and spend time discovering what you really want and re-design your life to be a truly fulfilling life?
Have you tried playing with FIRE?
Fire has brought enlightenment to human kind, and has transformed us from cavemen to everything that we are today. As important as fire is to mankind, it is not the kind of fire we are talking about here. FIRE stands for: Financial Independence, Retire Early.
In this post we will introduce the concept of FIRE, the benefits that may be attained, the impact it had on our lives, and share a 5-step guide to shift your attitude towards money and start your FIRE journey.
If you have any questions about FIRE after reading the post, leave a comment and we’ll try our best to answer your question. Also check out our top 8 resources for starting your journey to FIRE.
FIRE – what’s in it for me?
Becoming financially independent will give you the freedom to pursue your passions and experiment with new things. Whether you are thinking of a new career path, would like to spend more time on a hobby, or just need some time to figure out what it is that you want to do, freedom from financial obligations can help you to dedicate yourself to these questions.
It can also allow you to become location independent and travel the world without having to work, giving you the mind-space you need to explore new opportunities. Besides that, can we at all rely on our pension these days? With the global trend of pushing the age of retirement back, we might have to wait a long time before we can enjoy our well deserved retirement golfing in Spain.
Our early retirement as nomads
We wanted to create an environment for ourselves where we would have the mental capacity to think about what we really want and to try out different passions that we have been neglecting during our busy lifestyle. With an appetite for traveling the world, we were able to make this happen sooner rather than later. We have spent the last three years planning and working towards taking this step.
We learned about investing, read up about creating passive income, saved up a lot, reduced our costs, and invested into the stock market and real estate. After two years, we managed to reach the point where we had enough passive income to travel South-East Asia, where the costs of living are relatively lower than back in Amsterdam, the Netherlands.
Through our freedom, we were able to explore our hobbies, spend time practicing them, and now we are taking things to the next level. We are both passionate about writing and we like to put our ideas down and present them in a way that is useful for others. This is why we started our blog after 6 weeks of travelling, and this is how the idea to write a book came up. This would have never been possible when we had our busy full-time jobs back in Amsterdam.
What is FIRE?
FIRE is a movement that has grown in the last years to an international community of like-minded people seeking to build sufficient wealth to retire before the official retirement age. The idea is to pursue a frugal lifestyle and focus on the essential things that make us truly happy. It involves cutting costs, increasing income, and accumulating assets that generate income.
In essence, it is nothing new, people have been growing their wealth this way for centuries. There have been numerous books written about the topic dating back to the 2 centuries ago. Perhaps the most popular one is Rich Dad Poor Dad by Robert Kiyosaki. Through the Internet, the topic has reached even more attention and communities have grown and are flourishing.
How do you get to FIRE?
Pursuing financial independence requires a shift of mindset. Think of yourself as a business. You need to reach breakeven and eventually make profit. Your breakeven is the point where all your income is equal to all your costs. Any additional income beyond this point is considered profit. The catch is, you want to be a passive investor in this business, meaning you do not want to work for the money earned by the business.
You can start your journey towards an early retirement through taking the following steps:
Step 1: Make a Happy List
List all the things that REALLY make you happy and fulfilled. Feel free to include anything in this list. This is your life and you can design it in any way you wish, so make sure the list reflects what you desire at this point in time. On that note, don’t just throw in anything that pops in your mind, but try to consider what really makes you happy. Ignore the societal pressures and what makes others happy. Dig deep in yourself to figure this one out, as this will influence the next steps.
Step 2: List all your weekly / monthly expenses
Where does all your money go? We often think that we know what we are spending our money on, but this exercise can sometime reveal surprising new insights. Make the list as comprehensive as possible, include all the things you are currently spending your money on. A good place to start is your bank and credit card statements. Try to put similar items into higher-level categories, so that you can focus your efforts in the following steps. If you put money aside in savings or investments on a monthly basis, include those categories too. These are not expenses as such, but you can consider them as paying yourself a salary for later.
Step 3: List all your weekly / monthly income sources
Where does your money come from? Think of all sources of income you have. Include your salary, real estate income, dividends from stocks, interest from bonds, etc. Categorise these items into higher level groups as well. If you have only one source of income, don’t worry, this is just the beginning of your financial independence path. We all have to start somewhere. Ideally you want to have a number of categories at some point and not rely on a single source of income.
Step 4: Match your expenses to your Happy List
Now that you have made the three lists, it’s time to start working with them. Match each expense category to items on your Happy List. Ideally, all of your spending leads to something that makes you happy, but usually some expenses sneak in that could be avoided.
Coming back to the business analogy, the aim is to minimize costs. In a business, we would look for which costs are directly generating sales, and which are necessary to run the operation (overhead). Any costs that are not supporting the goals of the business could be eliminated. Your sales are the items on your Happy List.
For any expense that does not help you achieve an item on the list, you should think if it can be eliminated. But don’t eliminate your house and food, just like a business you have overhead costs that do not directly lead to sales but are necessary to keep the business running. Do try to think about how much you spend on these items and if it is really necessary.
Step 5: Create multiple sources of passive income to cover your expenses
This step is the hardest and will take the longest to achieve. However after completing step 4, you should have a smaller income target since your expenses have hopefully shrunk.
Creating passive income can be done through various forms of investment such as stocks, real estate, commodities, and bonds. You should explore different options and try to pursue the ones that resonate with you most. Like a business, you want to be as efficient and effective as possible in generating revenue. Focus on the things that you are familiar with and would like to dig deeper in to. We will not go into the details of how to create multiple sources of income as it will surpass the purpose of the article; there is plenty of information about this topic online and in books.
Is early retirement sustainable?
An aspect to consider is that your life will change over time. You might enter into different life stages, get married, start a family, support your elders, etc. These will of course impact your Happy List and expenses, and you might need to increase your income to support these new developments in your life. Retiring today is not a lifetime guarantee, but if you keep it in mind and strive to maintain the “retired” status, you have a bigger chance of maintaining it.
In the above steps we highlight the way to start your journey towards early retirement. It is not an easy journey and can take years to achieve, but if you do not work towards it, it might never happen.
We have managed to retire early and are able to live in Asia with the income we are currently generating. However, at some point we would like to be able to live in Europe with the same flexibility that we have now. With the first step to financial independence already taken and clearer visions of what would make us happy, we are confident that we will achieve financial independence in the next stages of our lives.
From the people that have achieved an early retirement, most have started up many projects and are still working in their every day life. The goal is not sit around like a plant and wait for life to pass by. It is about not having to work to support yourself and your family, and have the time to pursue the things that really make you happy. By pursuing those things, you will likely generate more income and will be ready for the next stages of life.